Loans Receivable, Net

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



	June 30, 2018		December 31, 2017
Residential Real Estate Loans	$	84,693,200	$	81,255,167
Consumer Loans	59,201,868		56,761,695
Commercial Business Loans	27,752,848		26,777,893
Commercial Real Estate Loans	270,776,940		237,814,628
Total Loans Held For Investment	442,424,856		402,609,383
Loans Held For Sale	2,530,032		3,051,950
Total Loans Receivable, Gross	$	444,954,888	$	405,661,333
Less:
Allowance For Loan Losses	8,611,176		8,221,618
Loans In Process	6,201,265		6,804,533
Deferred Loan Fees	216,095		141,985
	15,028,536		15,168,136
Total Loans Receivable, Net	$	429,926,352	$	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 June 30, 2018 and December 31, 2017.



June 30, 2018	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,696,924	$	2,779,039	$	1,251,240	$	3,965,997	$	84,693,200
Consumer	51,714,766		4,817,240		403,512		2,266,350		59,201,868
Commercial Business	22,833,596		3,719,984		708,927		490,341		27,752,848
Commercial Real Estate	192,444,121		48,026,111		20,204,804		10,101,904		270,776,940
Total	$	343,689,407	$	59,342,374	$	22,568,483	$	16,824,592	$	442,424,856



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 June 30, 2018 and December 31, 2017:



	June 30, 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	$	384,649	$	—	$	584,072	$	968,721	$	83,724,479	$	84,693,200
Consumer	1,075,500		101,869		34,578		1,211,947		57,989,921		59,201,868
Commercial Business	182,971		82,403		5,000		270,374		27,482,474		27,752,848
Commercial Real Estate	3,738,004		550,734		1,446,195		5,734,933		265,042,007		270,776,940
Total	$	5,381,124	$	735,006	$	2,069,845	$	8,185,975	$	434,238,881	$	442,424,856



	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 June 30, 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 June 30, 2018 compared to December 31, 2017:



	June 30, 2018				December 31, 2017				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	2,014,008	0.5	%	$	1,948,524	0.5	%	$	65,484		3.4%
Consumer	200,056		0.1		318,926		0.1		$	(118,870	)	(37.3)
Commercial Business	83,806		—		109,401		—		(25,595		)	(23.4)
Commercial Real Estate	6,935,604		1.6		3,340,904		0.8		3,594,700			107.6
Total Non-accrual Loans	$	9,233,474	2.2	%	$	5,717,755	1.5	%	$	3,515,719		61.5%

^{(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, 2018 and 2017:



	Three Months Ended June 30, 2018
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,207,254		$	1,042,150		$	1,128,680		$	4,825,932		$	8,204,016
Provision for Loan Losses	104,394			185,314			(40,216		)	(249,492		)	—
Charge-Offs	(2,579		)	(73,774		)	(11,031		)	(9,890		)	(97,274		)
Recoveries	—			60,084			—			444,350			504,434
Ending Balance	$	1,309,069		$	1,213,774		$	1,077,433		$	5,010,900		$	8,611,176




	Six Months Ended June 30, 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	88,949			72,381			98,724			(260,054		)	—
Charge-Offs	(13,930		)	(91,026		)	(32,518		)	(9,890		)	(147,364		)
Recoveries	207			87,604			—			449,111			536,922
Ending Balance	$	1,309,069		$	1,213,774		$	1,077,433		$	5,010,900		$	8,611,176



	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

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, 2018	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,309,069	$	1,309,069
Consumer	—		1,213,774		1,213,774
Commercial Business	—		1,077,433		1,077,433
Commercial Real Estate	98,055		4,912,845		5,010,900
Total	$	98,055	$	8,513,121	$	8,611,176



	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

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, 2018	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,648,510	$	83,044,690	$	84,693,200
Consumer	92,618		59,109,250		59,201,868
Commercial Business	78,806		27,674,042		27,752,848
Commercial Real Estate	10,026,588		260,750,352		270,776,940
Total	$	11,846,522	$	430,578,334	$	442,424,856



	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

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 $12.8 million for the three months ended June 30, 2018 compared to $10.4 million for the three months ended June 30, 2017.

The following tables present information related to impaired loans by loan category at June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017.



	June 30, 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	$	1,648,511	$	2,175,691	$	—	$	1,883,741	$	2,333,741	$	—
Consumer	92,618		100,918		—		181,617		209,427		—
Commercial Business	78,806		973,806		—		100,401		950,401		—
Commercial Real Estate	9,774,850		10,878,237		—		6,276,547		7,583,847		—
With an Allowance Recorded:
Commercial Real Estate	251,738		251,738		98,055		—		—		—
Total
Residential Real Estate	1,648,511		2,175,691		—		1,883,741		2,333,741		—
Consumer	92,618		100,918		—		181,617		209,427		—
Commercial Business	78,806		973,806		—		100,401		950,401		—
Commercial Real Estate	10,026,588		11,129,975		98,055		6,276,547		7,583,847		—
Total	$	11,846,523	$	14,380,390	$	98,055	$	8,442,306	$	11,077,416	$	—

8. Loans Receivable, Net, Continued



	Three Months Ended June 30,
	2018				2017
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,963,932	$	—	$	2,639,699	$	22,563
Consumer	177,644		—		149,953		—
Commercial Business	85,804		—		145,401		—
Commercial Real Estate	10,285,113		56,646		7,192,652		68,515
With an Allowance Recorded:
Commercial Real Estate	252,821		2,509		252,450		—
Total
Residential Real Estate	1,963,932		—		2,639,699		22,563
Consumer	177,644		—		149,953		—
Commercial Business	85,804		—		145,401		—
Commercial Real Estate	10,537,934		59,155		7,445,102		68,515
Total	$	12,765,314	$	59,155	$	10,380,155	$	91,078



	Six Months Ended June 30,
	2018				2017
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,089,364	$	1,078	$	2,816,097	$	23,113
Consumer	179,177		—		158,227		—
Commercial Business	91,260		—		145,401		—
Commercial Real Estate	10,325,567		117,215		7,314,836		115,288
With an Allowance Recorded:
Commercial Real Estate	252,821		2,849		250,234		—
Total
Residential Real Estate	2,089,364		1,078		2,816,097		23,113
Consumer	179,177		—		158,227		—
Commercial Business	91,260		—		145,401		—
Commercial Real Estate	10,578,388		120,064		7,565,070		115,288
Total	$	12,938,189	$	121,142	$	10,684,795	$	138,401

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.

8. Loans Receivable, Net, Continued

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 June 30, 2018 and December 31, 2017 were $4.0 million and $4.1 million, respectively. There were no new TDRs during the three or six months ended June 30, 2018 and 2017. At June 30, 2018, two TDR loans with a balance of $607,000 were in default. In comparison, at June 30, 2017, two TDR loans totaling $599,000 were in default. None of these TDR loans defaulted during the three or six months ended June 30, 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.