Loans Receivable, Net

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



	March 31, 2018		December 31, 2017
Residential Real Estate Loans	$	83,589,911	$	81,255,167
Consumer Loans	56,987,930		56,761,695
Commercial Business Loans	27,418,240		26,777,893
Commercial Real Estate Loans	260,934,120		237,814,628
Total Loans Held For Investment	428,930,201		402,609,383
Loans Held For Sale	2,407,478		3,051,950
Total Loans Receivable, Gross	$	431,337,679	$	405,661,333
Less:
Allowance For Loan Losses	8,204,016		8,221,618
Loans In Process	6,485,095		6,804,533
Deferred Loan Fees	183,307		141,985
	14,872,418		15,168,136
Total Loans Receivable, Net	$	416,465,261	$	390,493,197

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 tables below summarize the balance within each risk category by loan type, excluding loans held for sale, at March 31, 2018 and December 31, 2017.



March 31, 2018	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,150,747	$	2,371,703	$	1,373,452	$	3,694,009	$	83,589,911
Consumer	52,494,595		2,017,966		333,232		2,142,137		56,987,930
Commercial Business	23,898,935		2,159,204		741,347		618,754		27,418,240
Commercial Real Estate	175,923,588		52,257,154		26,210,285		6,543,093		260,934,120
Total	$	328,467,865	$	58,806,027	$	28,658,316	$	12,997,993	$	428,930,201



December 31, 2017	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	73,225,237	$	2,352,536	$	1,384,222	$	4,293,172	$	81,255,167
Consumer	52,249,017		1,862,340		344,361		2,305,977		56,761,695
Commercial Business	23,396,550		2,066,749		767,048		547,546		26,777,893
Commercial Real Estate	158,232,465		53,798,061		21,269,279		4,514,823		237,814,628
Total	$	307,103,269	$	60,079,686	$	23,764,910	$	11,661,518	$	402,609,383

8. Loans Receivable, Net, Continued

The following tables present an age analysis of past due balances, including loans on non-accrual status, by category at March 31, 2018 and December 31, 2017:



	March 31, 2018
	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	$	779,645	$	—	$	982,293	$	1,761,938	$	81,827,973	$	83,589,911
Consumer	976,440		56,511		127,939		1,160,890		55,827,040		56,987,930
Commercial Business	287,093		110,527		5,000		402,620		27,015,620		27,418,240
Commercial Real Estate	2,718,387		2,225,386		2,030,087		6,973,860		253,960,260		260,934,120
Total	$	4,761,565	$	2,392,424	$	3,145,319	$	10,299,308	$	418,630,893	$	428,930,201



	December 31, 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	$	395,763	$	—	$	948,875	$	1,344,638	$	79,910,529	$	81,255,167
Consumer	604,809		85,178		182,757		872,744		55,888,951		56,761,695
Commercial Business	185,526		102,244		—		287,770		26,490,123		26,777,893
Commercial Real Estate	2,207,655		364,515		1,919,292		4,491,462		233,323,166		237,814,628
Total	$	3,393,753	$	551,937	$	3,050,924	$	6,996,614	$	395,612,769	$	402,609,383

At March 31, 2018 and December 31, 2017, 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 March 31, 2018 compared to December 31, 2017:



	March 31, 2018				December 31, 2017				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	2,019,106	0.5	%	$	1,948,524	0.5	%	$	70,582		3.6%
Consumer	322,268		0.1		318,926		0.1		$	3,342		1.0
Commercial Business	95,001		—		109,401		—		(14,400		)	(13.2)
Commercial Real Estate	4,144,839		1.0		3,340,904		0.8		803,935			24.1
Total Non-accrual Loans	$	6,581,214	1.6	%	$	5,717,755	1.5	%	$	863,459		15.1%

^{(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 months ended March 31, 2018 and 2017:



	Three Months Ended March 31, 2018
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,233,843		$	1,144,815		$	1,011,227		$	4,831,733		$	8,221,618
Provision for Loan Losses	(15,445		)	(112,933		)	138,940			(10,562		)	—
Charge-Offs	(11,351		)	(17,252		)	(21,487		)	—			(50,090		)
Recoveries	207			27,520			—			4,761			32,488
Ending Balance	$	1,207,254		$	1,042,150		$	1,128,680		$	4,825,932		$	8,204,016



	Three Months Ended March 31, 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	110,338			100,554			87,379			(298,271		)	—
Charge-Offs	(6,517		)	(23,611		)	(5,890		)	—			(36,018		)
Recoveries	750			27,141			—			29,795			57,686
Ending Balance	$	1,464,917		$	1,100,704		$	964,488		$	4,847,790		$	8,377,899

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
March 31, 2018	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,207,254	$	1,207,254
Consumer	—		1,042,150		1,042,150
Commercial Business	—		1,128,680		1,128,680
Commercial Real Estate	102,756		4,723,176		4,825,932
Total	$	102,756	$	8,101,260	$	8,204,016



	Allowance For Loan Losses
December 31, 2017	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,233,843	$	1,233,843
Consumer	—		1,144,815		1,144,815
Commercial Business	—		1,011,227		1,011,227
Commercial Real Estate	—		4,831,733		4,831,733
Total	$	—	$	8,221,618	$	8,221,618

8. Loans Receivable, Net, Continued

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



	Loans Receivable
March 31, 2018	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,685,496	$	81,904,415	$	83,589,911
Consumer	178,778		56,809,152		56,987,930
Commercial Business	90,001		27,328,239		27,418,240
Commercial Real Estate	6,836,118		254,098,002		260,934,120
Total	$	8,790,393	$	420,139,808	$	428,930,201



	Loans Receivable
December 31, 2017	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,883,741	$	79,371,426	$	81,255,167
Consumer	181,617		56,580,078		56,761,695
Commercial Business	100,401		26,677,492		26,777,893
Commercial Real Estate	6,276,547		231,538,081		237,814,628
Total	$	8,442,306	$	394,167,077	$	402,609,383

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 $8.9 million for the three months ended March 31, 2018 compared to $8.8 million for the three months ended March 31, 2017.

8. Loans Receivable, Net, Continued

The following tables present information related to impaired loans by loan category at March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017.



	March 31, 2018						December 31, 2017
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	1,685,497	$	2,212,677	$	—	$	1,883,741	$	2,333,741	$	—
Consumer	178,778		246,588		—		181,617		209,427		—
Commercial Business	90,001		985,001		—		100,401		950,401		—
Commercial Real Estate	6,582,213		7,973,300		—		6,276,547		7,583,847		—
With an Allowance Recorded:
Commercial Real Estate	253,905		253,905		102,756		—		—		—
Total
Residential Real Estate	1,685,497		2,212,677		—		1,883,741		2,333,741		—
Consumer	178,778		246,588		—		181,617		209,427		—
Commercial Business	90,001		985,001		—		100,401		950,401		—
Commercial Real Estate	6,836,118		8,227,205		102,756		6,276,547		7,583,847		—
Total	$	8,790,394	$	11,671,471	$	102,756	$	8,442,306	$	11,077,416	$	—



	Three Months Ended March 31,
	2018				2017
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,757,575	$	—	$	2,243,655	$	—
Consumer	180,610		—		108,424		—
Commercial Business	96,401		—		145,401		—
Commercial Real Estate	6,625,186		37,207		5,817,309		38,632
With an Allowance Recorded:
Consumer	—		—		60,027		—
Commercial Real Estate	253,905		340		398,329		6,514
Total
Residential Real Estate	1,757,575		—		2,243,655		—
Consumer	180,610		—		168,451		—
Commercial Business	96,401		—		145,401		—
Commercial Real Estate	6,879,091		37,547		6,215,638		45,146
Total	$	8,913,677	$	37,547	$	8,773,145	$	45,146

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") 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.

At the date of modification, TDRs are initially classified as nonaccrual TDRs. TDR loans 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).

TDRs included in impaired loans at March 31, 2018 and December 31, 2017 were $4.1 million and $4.3 million, respectively. There were 0 new TDRs during the three months ended March 31, 2018 and 2017. At March 31, 2018, one TDR loan with a balance of $570,000 was in default. In comparison, at March 31, 2017, two TDR loans totaling $599,000 were in default. None of these TDR loans defaulted during the three months ended March 31, 2018 and 2017. 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. Further, the borrower must demonstrate the capacity to continue making payments on the loan prior to restoration of accrual status.