Loans Receivable, Net

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



	June 30, 2017		December 31, 2016
Residential Real Estate Loans	$	76,954,021	$	77,979,909
Consumer Loans	53,672,884		50,667,894
Commercial Business Loans	22,013,710		16,279,177
Commercial Real Estate Loans	216,564,464		222,599,294
Total Loans Held For Investment	369,205,079		367,526,274
Loans Held For Sale	3,678,021		4,243,907
Total Loans Receivable, Gross	$	372,883,100	$	371,770,181
Less:
Allowance For Loan Losses	8,202,632		8,356,231
Loans In Process	4,569,760		3,526,064
Deferred Loan Fees	148,197		165,040
	12,920,589		12,047,335
Total Loans Receivable, Net	$	359,962,511	$	359,722,846

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, 2017	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	67,467,948	$	2,173,366	$	1,388,484	$	5,924,223	$	76,954,021
Consumer	49,165,277		1,730,399		256,683		2,520,525		53,672,884
Commercial Business	18,551,832		1,959,832		880,216		621,830		22,013,710
Commercial Real Estate	137,546,053		55,142,285		18,313,257		5,562,869		216,564,464
Total	$	272,731,110	$	61,005,882	$	20,838,640	$	14,629,447	$	369,205,079



	Credit Quality Measures
December 31, 2016	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	70,503,057	$	665,235	$	1,082,928	$	5,728,689	$	77,979,909
Consumer	46,818,650		2,591,860		6,357		1,251,027		50,667,894
Commercial Business	14,731,698		1,002,170		50,081		495,228		16,279,177
Commercial Real Estate	127,068,983		71,927,031		18,153,718		5,449,562		222,599,294
Total	$	259,122,388	$	76,186,296	$	19,293,084	$	12,924,506	$	367,526,274

8. Loans Receivable, Net, Continued

The following tables present an age analysis of past due balances by category at June 30, 2017 and December 31, 2016:



	June 30, 2017
	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	$	—	$	971,976	$	2,643,584	$	3,615,560	$	73,338,461	$	76,954,021
Consumer	431,862		193,376		440,277		1,065,515		52,607,369		53,672,884
Commercial Business	50,343		179,818		180,705		410,866		21,602,844		22,013,710
Commercial Real Estate	849,079		80,509		4,442,010		5,371,598		211,192,866		216,564,464
Total	$	1,331,284	$	1,425,679	$	7,706,576	$	10,463,539	$	358,741,540	$	369,205,079



	December 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	$	653,858	$	—	$	2,488,158	$	3,142,016	$	74,837,893	$	77,979,909
Consumer	625,178		119,640		241,571		986,389		49,681,505		50,667,894
Commercial Business	536,492		69,256		145,401		751,149		15,528,028		16,279,177
Commercial Real Estate	1,719,758		256,285		2,639,837		4,615,880		217,983,414		222,599,294
Total	$	3,535,286	$	445,181	$	5,514,967	$	9,495,434	$	358,030,840	$	367,526,274

At June 30, 2017 and December 31, 2016, 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, 2017 compared to December 31, 2016:



	June 30, 2017				December 31, 2016				$		%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)		Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	2,643,584	0.73	%	$	2,488,158	0.68	%	$	155,426	6.2	%
Consumer	440,277		0.12		241,571		0.07		$	198,706	82.3	%
Commercial Business	180,705		0.05		145,401		0.04		35,304		24.3
Commercial Real Estate	4,442,010		1.22		2,639,837		0.73		1,802,173		68.3
Total Non-accrual Loans	$	7,706,576	2.12	%	$	5,514,967	1.52	%	$	2,191,609	39.7	%

^{(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, 2017 and 2016:



	Three Months Ended June 30, 2017
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,464,917		$	1,100,704		$	964,488		$	4,847,790		$	8,377,899
Provision for Loan Losses	50,008			23,765			(83,847		)	10,074			—
Charge-Offs	(64,986		)	(18,244		)	1			(136,000		)	(219,229		)
Recoveries	237			16,248			—			27,477			43,962
Ending Balance	$	1,450,176		$	1,122,473		$	880,642		$	4,749,341		$	8,202,632



	Six Months Ended June 30, 2017
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,360,346		$	996,620		$	882,999		$	5,116,266		$	8,356,231
Provision for Loan Losses	160,346			124,319			3,532			(288,197		)	—
Charge-Offs	(71,503		)	(41,855		)	(5,889		)	(136,000		)	(255,247		)
Recoveries	987			43,389			—			57,272			101,648
Ending Balance	$	1,450,176		$	1,122,473		$	880,642		$	4,749,341		$	8,202,632



	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

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, 2017	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,450,176	$	1,450,176
Consumer	—		1,122,473		1,122,473
Commercial Business	—		880,642		880,642
Commercial Real Estate	19,566		4,729,775		4,749,341
Total	$	19,566	$	8,183,066	$	8,202,632



	Allowance For Loan Losses
December 31, 2016	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,360,346	$	1,360,346
Consumer	1,699		994,921		996,620
Commercial Business	—		882,999		882,999
Commercial Real Estate	12,590		5,103,676		5,116,266
Total	$	14,289	$	8,341,942	$	8,356,231

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, 2017	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,492,298	$	74,461,723	$	76,954,021
Consumer	104,492		53,568,392		53,672,884
Commercial Business	145,401		21,868,309		22,013,710
Commercial Real Estate	7,368,117		209,196,347		216,564,464
Total	$	10,110,308	$	359,094,771	$	369,205,079



	Loans Receivable
December 31, 2016	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,181,740	$	75,798,169	$	77,979,909
Consumer	170,552		50,497,342		50,667,894
Commercial Business	145,401		16,133,776		16,279,177
Commercial Real Estate	5,830,341		216,768,953		222,599,294
Total	$	8,328,034	$	359,198,240	$	367,526,274

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 sell, 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 $10.4 million for the three months ended June 30, 2017 compared to $10.3 million for the three months ended June 30, 2016.

The following tables present information related to impaired loans by loan category at June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016.



	June 30, 2017						December 31, 2016
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	2,492,298	$	2,492,298	$	—	$	2,181,740	$	2,263,240	$	—
Consumer	104,492		112,792		—		110,114		118,414		—
Commercial Business	145,401		995,401		—		145,401		995,401		—
Commercial Real Estate	7,100,151		8,361,152		—		5,424,701		7,207,688		—
With An Allowance Recorded:
Consumer	—		—		—		60,438		60,438		1,699
Commercial Real Estate	267,966		508,966		19,566		405,640		418,654		12,590
Total
Residential Real Estate	2,492,298		2,492,298		—		2,181,740		2,263,240		—
Consumer	104,492		112,792		—		170,552		178,852		1,699
Commercial Business	145,401		995,401		—		145,401		995,401		—
Commercial Real Estate	7,368,117		8,870,118		19,566		5,830,341		7,626,342		12,590
Total	$	10,110,308	$	12,470,609	$	19,566	$	8,328,034	$	11,063,835	$	14,289

8. Loans Receivable, Net, Continued



	Three Months Ended June 30,
	2017				2016
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,639,699	$	22,563	$	2,662,040	$	—
Consumer	149,953		—		289,655		—
Commercial Business	145,401		—		149,801		—
Commercial Real Estate	7,192,652		68,515		6,675,462		31,353
With An Allowance Recorded:
Consumer	—		—		62,323		1,144
Commercial Real Estate	252,450		—		434,101		—
Total
Residential Real Estate	2,639,699		22,563		2,662,040		—
Consumer	149,953		—		351,978		1,144
Commercial Business	145,401		—		149,801		—
Commercial Real Estate	7,445,102		68,515		7,109,563		31,353
Total	$	10,380,155	$	91,078	$	10,273,382	$	32,497



	Six Months Ended June 30,
	2017				2016
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,816,097	$	23,113	$	2,790,857	$	447
Consumer	158,227		—		296,075		—
Commercial Business	145,401		—		154,316		—
Commercial Real Estate	7,314,836		115,288		8,632,348		93,284
With An Allowance Recorded:
Consumer	—		—		62,693		1,555
Commercial Real Estate	250,234		—		437,943		—
Total
Residential Real Estate	2,816,097		23,113		2,790,857		447
Consumer	158,227		—		358,768		1,555
Commercial Business	145,401		—		154,316		—
Commercial Real Estate	7,565,070		115,288		9,070,291		93,284
Total	$	10,684,795	$	138,401	$	12,374,232	$	95,286

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, 2017 and December 31, 2016 were $4.3 million and $4.6 million, respectively, and the Bank had no commitments at these dates to lend additional funds on these loans.

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 Bank did not modify any loans that were considered to be TDRs during the six months ended June 30, 2017 and 2016. At June 30, 2017, two loans totaling $599,000 that had previously been restructured as TDRs were in default, neither of which had been restructured within the last 12 months. Neither of these loans defaulted during the six month period ended June 30, 2017. In comparison, at June 30, 2016, six loans totaling $770,000 that had previously been restructured as TDRs were in default, and three of the loans, with a balance of $641,000 defaulted during the six month period ended June 30, 2016. 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.