Loans Receivable, Net

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



	June 30, 2019		December 31, 2018
Residential Real Estate Loans	$	86,342,461	$	83,965,416
Consumer Loans	55,487,981		56,907,555
Commercial Business Loans	28,644,611		28,086,686
Commercial Real Estate Loans	284,436,448		275,960,438
Total Loans Held For Investment	454,911,501		444,920,095
Loans Held For Sale	3,750,815		1,781,985
Total Loans Receivable, Gross	$	458,662,316	$	446,702,080
Less:
Allowance For Loan Losses	8,753,539		9,171,717
Loans in Process	7,976,939		7,225,271
Deferred Loan Fees	356,170		251,575
	17,086,648		16,648,563
Total Loans Receivable, Net	$	441,575,668	$	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 June 30, 2019 and December 31, 2018.



June 30, 2019	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	77,215,699	$	4,408,390	$	1,258,332	$	3,460,040	$	86,342,461
Consumer	45,116,336		8,043,951		476,096		1,851,598		55,487,981
Commercial Business	22,838,747		5,210,616		329,530		265,718		28,644,611
Commercial Real Estate	211,766,521		51,632,311		16,617,403		4,420,213		284,436,448
Total	$	356,937,303	$	69,295,268	$	18,681,361	$	9,997,569	$	454,911,501



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 June 30, 2019 and December 31, 2018:



	June 30, 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	$	317,819	$	—	$	55,844	$	373,663	$	85,968,798	$	86,342,461
Consumer	346,110		170,596		44,051		560,757		54,927,224		55,487,981
Commercial Business	60,945		35,448		42,968		139,361		28,505,250		28,644,611
Commercial Real Estate	1,576,388		16,509		2,071,736		3,664,633		280,771,815		284,436,448
Total	$	2,301,262	$	222,553	$	2,214,599	$	4,738,414	$	450,173,087	$	454,911,501



	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 June 30, 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 June 30, 2019 compared to December 31, 2018:



	June 30, 2019				December 31, 2018				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	1,377,567	0.3	%	$	2,084,870	0.5	%	$	(707,303	)	(33.9)%
Consumer	354,381		0.1		1,274,673		0.3		$	(920,292	)	(72.2)
Commercial Business	115,375		—		124,458		—		(9,083		)	(7.3)
Commercial Real Estate	2,614,607		0.6		3,564,494		0.8		(949,887		)	(26.6)
Total Non-accrual Loans	$	4,461,930	1.0	%	$	7,048,495	1.5	%	$	(2,586,565	)	(36.7)%

^{(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, 2019 and 2018:



	Three Months Ended June 30, 2019
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,147,670		$	1,121,205		$	991,982		$	5,537,698		$	8,798,555
Provision for Loan Losses	(23,308		)	69,702			(95,635		)	49,241			—
Charge-Offs	—			(135,286		)	—			(28,079		)	(163,365		)
Recoveries	1,450			36,706			496			79,697			118,349
Ending Balance	$	1,125,812		$	1,092,327		$	896,843		$	5,638,557		$	8,753,539



	Six Months Ended June 30, 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	(35,958		)	74,508			(40,189		)	101,639			100,000
Charge-Offs	(34,599		)	(265,480		)	(1,132		)	(428,164		)	(729,375		)
Recoveries	4,926			79,706			14,564			112,001			211,197
Ending Balance	$	1,125,812		$	1,092,327		$	896,843		$	5,638,557		$	8,753,539



	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

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, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,125,812	$	1,125,812
Consumer	71,301		1,021,026		1,092,327
Commercial Business	—		896,843		896,843
Commercial Real Estate	565,000		5,073,557		5,638,557
Total	$	636,301	$	8,117,238	$	8,753,539



	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

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, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,142,166	$	85,200,295	$	86,342,461
Consumer	206,117		55,281,864		55,487,981
Commercial Business	72,407		28,572,204		28,644,611
Commercial Real Estate	3,380,756		281,055,692		284,436,448
Total	$	4,801,446	$	450,110,055	$	454,911,501



	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

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 $4.9 million for the three months ended June 30, 2019 compared to $12.8 million for the three months ended June 30, 2018.

The following tables present information related to impaired loans by loan category at June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018.



	June 30, 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	$	1,142,165	$	1,142,165	$	—	$	1,700,861	$	1,700,861	$	—
Consumer	134,817		143,117		—		986,380		994,680		—
Commercial Business	72,406		967,406		—		77,206		972,206		—
Commercial Real Estate	2,383,766		2,676,723		—		5,084,458		6,116,761		—
With an Allowance Recorded:
Consumer	71,301		71,301		71,301		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	1,142,165		1,142,165		—		1,700,861		1,700,861		—
Consumer	206,118		214,418		71,301		1,060,042		1,068,342		73,662
Commercial Business	72,406		967,406		—		77,206		972,206		—
Commercial Real Estate	3,380,756		4,073,713		565,000		6,526,016		7,558,319		665,000
Total	$	4,801,445	$	6,397,702	$	636,301	$	9,364,125	$	11,299,728	$	738,662

8. Loans Receivable, Net, Continued



	Three Months Ended June 30,
	2019				2018
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,157,380	$	—	$	1,963,932	$	—
Consumer	137,233		—		177,644		—
Commercial Business	73,606		—		85,804		—
Commercial Real Estate	2,481,028		14,085		10,285,113		56,646
With an Allowance Recorded:
Consumer	71,554		—		—		—
Commercial Real Estate	996,990		—		252,821		2,509
Total
Residential Real Estate	1,157,380		—		1,963,932		—
Consumer	208,787		—		177,644		—
Commercial Business	73,606		—		85,804		—
Commercial Real Estate	3,478,018		14,085		10,537,934		59,155
Total	$	4,917,791	$	14,085	$	12,765,314	$	59,155



	Six Months Ended June 30,
	2019				2018
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,347,984	$	—	$	2,089,364	$	1,078
Consumer	982,404		—		179,177		—
Commercial Business	75,149		—		91,260		—
Commercial Real Estate	2,866,245		28,332		10,325,567		117,215
With an Allowance Recorded:
Consumer	72,072		—		—		—
Commercial Real Estate	1,181,152		—		252,821		2,849
Total
Residential Real Estate	1,347,984		—		2,089,364		1,078
Consumer	1,054,476		—		179,177		—
Commercial Business	75,149		—		91,260		—
Commercial Real Estate	4,047,397		28,332		10,578,388		120,064
Total	$	6,525,006	$	28,332	$	12,938,189	$	121,142

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 June 30, 2019 and December 31, 2018 were $896,000 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 six months ended June 30, 2019 and 2018. At June 30, 2019, there were no TDR loans in default. In comparison, at June 30, 2018, two TDR loans with a combined balance of $607,000 were in default. There were no TDRs, for which there was a payment default within the first 12 months of the modification during the six months ended June 30, 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.