Loans Receivable, Net

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



	March 31, 2019		December 31, 2018
Residential Real Estate Loans	$	86,508,157	$	83,965,416
Consumer Loans	56,212,590		56,907,555
Commercial Business Loans	28,427,888		28,086,686
Commercial Real Estate Loans	273,552,017		275,960,438
Total Loans Held For Investment	444,700,652		444,920,095
Loans Held For Sale	2,436,445		1,781,985
Total Loans Receivable, Gross	$	447,137,097	$	446,702,080
Less:
Allowance For Loan Losses	8,798,555		9,171,717
Loans in Process	8,680,994		7,225,271
Deferred Loan Fees	343,955		251,575
	17,823,504		16,648,563
Total Loans Receivable, Net	$	429,313,593	$	430,053,517

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, 2019 and December 31, 2018.



March 31, 2019	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	77,770,778	$	3,657,026	$	1,091,391	$	3,988,962	$	86,508,157
Consumer	45,985,872		7,487,826		599,885		2,139,007		56,212,590
Commercial Business	23,245,346		4,525,430		325,536		331,576		28,427,888
Commercial Real Estate	203,448,112		48,830,506		16,260,392		5,013,007		273,552,017
Total	$	350,450,108	$	64,500,788	$	18,277,204	$	11,472,552	$	444,700,652



December 31, 2018	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	75,558,544	$	3,369,776	$	958,354	$	4,078,742	$	83,965,416
Consumer	46,948,251		6,899,912		567,682		2,491,710		56,907,555
Commercial Business	22,670,318		4,708,036		339,533		368,799		28,086,686
Commercial Real Estate	204,197,354		45,653,796		18,492,785		7,616,503		275,960,438
Total	$	349,374,467	$	60,631,520	$	20,358,354	$	14,555,754	$	444,920,095

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, 2019 and December 31, 2018:



	March 31, 2019
	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	$	666,320	$	—	$	94,128	$	760,448	$	85,747,709	$	86,508,157
Consumer	671,814		239,996		141,911		1,053,721		55,158,869		56,212,590
Commercial Business	70,744		63,631		13,108		147,483		28,280,405		28,427,888
Commercial Real Estate	699,591		—		2,457,894		3,157,485		270,394,532		273,552,017
Total	$	2,108,469	$	303,627	$	2,707,041	$	5,119,137	$	439,581,515	$	444,700,652



	December 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	$	—	$	332,000	$	497,713	$	829,713	$	83,135,703	$	83,965,416
Consumer	555,798		247,894		1,120,462		1,924,154		54,983,401		56,907,555
Commercial Business	205,613		106,163		18,648		330,424		27,756,262		28,086,686
Commercial Real Estate	1,556,863		424,103		1,634,770		3,615,736		272,344,702		275,960,438
Total	$	2,318,274	$	1,110,160	$	3,271,593	$	6,700,027	$	438,220,068	$	444,920,095

At March 31, 2019 and December 31, 2018, the Company did not have any loans that were 90 days or more past due and still accruing interest. The Company's strategy is to work with its borrowers to reach acceptable payment plans while protecting its interests in the existing collateral. In the event an acceptable arrangement cannot be reached, the Company 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, 2019 compared to December 31, 2018:



	March 31, 2019				December 31, 2018				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	1,756,515	0.4	%	$	2,084,870	0.5	%	$	(328,355	)	(15.7)%
Consumer	457,267		0.1		1,274,673		0.3		$	(817,406	)	(64.1)
Commercial Business	118,320		—		124,458		—		(6,138		)	(4.9)
Commercial Real Estate	3,010,259		0.7		3,564,494		0.8		(554,235		)	(15.5)
Total Non-accrual Loans	$	5,342,361	1.2	%	$	7,048,495	1.5	%	$	(1,706,134	)	(24.2)%

^{(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, 2019 and 2018:



	Three Months Ended March 31, 2019
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,191,443		$	1,203,593		$	923,600		$	5,853,081		$	9,171,717
Provision for Loan Losses	(12,650		)	4,806			55,446			52,398			100,000
Charge-Offs	(34,599		)	(130,194		)	(1,132		)	(400,085		)	(566,010		)
Recoveries	3,476			43,000			14,068			32,304			92,848
Ending Balance	$	1,147,670		$	1,121,205		$	991,982		$	5,537,698		$	8,798,555



	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

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, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,147,670	$	1,147,670
Consumer	72,314		1,048,891		1,121,205
Commercial Business	—		991,982		991,982
Commercial Real Estate	565,000		4,972,698		5,537,698
Total	$	637,314	$	8,161,241	$	8,798,555



	Allowance For Loan Losses
December 31, 2018	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,191,443	$	1,191,443
Consumer	73,662		1,129,931		1,203,593
Commercial Business	—		923,600		923,600
Commercial Real Estate	665,000		5,188,081		5,853,081
Total	$	738,662	$	8,433,055	$	9,171,717

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, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,345,077	$	85,163,080	$	86,508,157
Consumer	210,749		56,001,841		56,212,590
Commercial Business	77,206		28,350,682		28,427,888
Commercial Real Estate	3,864,888		269,687,129		273,552,017
Total	$	5,497,920	$	439,202,732	$	444,700,652



	Loans Receivable
December 31, 2018	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,700,861	$	82,264,555	$	83,965,416
Consumer	1,060,043		55,847,512		56,907,555
Commercial Business	77,206		28,009,480		28,086,686
Commercial Real Estate	6,526,015		269,434,423		275,960,438
Total	$	9,364,125	$	435,555,970	$	444,920,095

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 $6.7 million for the three months ended March 31, 2019 compared to $8.9 million for the three months ended March 31, 2018.

8. Loans Receivable, Net, Continued

The following tables present information related to impaired loans by loan category at March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018. There was no allowance recorded related to any impaired loans at March 31, 2019.



	March 31, 2019						December 31, 2018
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	1,345,077	$	1,345,077	$	—	$	1,700,861	$	1,700,861	$	—
Consumer	138,435		146,735		—		986,380		994,680		—
Commercial Business	77,206		972,206		—		77,206		972,206		—
Commercial Real Estate	2,867,898		3,660,285		—		5,084,458		6,116,761		—
With an Allowance Recorded:
Consumer	72,314		72,314		72,314		73,662		73,662		73,662
Commercial Real Estate	996,990		1,396,990		565,000		1,441,558		1,441,558		665,000
Total
Residential Real Estate	1,345,077		1,345,077		—		1,700,861		1,700,861		—
Consumer	210,749		219,049		72,314		1,060,042		1,068,342		73,662
Commercial Business	77,206		972,206		—		77,206		972,206		—
Commercial Real Estate	3,864,888		5,057,275		565,000		6,526,016		7,558,319		665,000
Total	$	5,497,920	$	7,593,607	$	637,314	$	9,364,125	$	11,299,728	$	738,662



	Three Months Ended March 31,
	2019				2018
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,361,079	$	—	$	1,757,575	$	—
Consumer	984,528		—		180,610		—
Commercial Business	77,206		—		96,401		—
Commercial Real Estate	2,884,732		14,247		6,625,186		37,207
With an Allowance Recorded:
Consumer	72,651		—		—		—
Commercial Real Estate	1,319,274		—		253,905		340
Total
Residential Real Estate	1,361,079		—		1,757,575		—
Consumer	1,057,179		—		180,610		—
Commercial Business	77,206		—		96,401		—
Commercial Real Estate	4,204,006		14,247		6,879,091		37,547
Total	$	6,699,470	$	14,247	$	8,913,677	$	37,547

8. Loans Receivable, Net, Continued

In the course of resolving delinquent loans, the Company may choose to restructure the contractual terms of certain loans. A troubled debt restructuring ("TDR") is a restructuring in which the Company, 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 Company 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, 2019 and December 31, 2018 were $1.3 million and $1.4 million, respectively, and the Company had no commitments at these dates to lend additional funds on these loans. There were no new TDRs during the three months ended March 31, 2019 and 2018. At March 31, 2019, one TDR loan with a balance of $363,000 was in default. In comparison, at March 31, 2018, one TDR loan with a balance of $570,000 was in default. There were no TDRs, for which there was a payment default within the first 12 months of the modification during the three months ended March 31, 2019 and 2018. The Bank considers any loan 30 days or more past due to be in default.

The Company's 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.

The Company closely monitors 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. The Company's 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.