Loans Receivable, Net

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



	March 31, 2020		December 31, 2019
Residential Real Estate Loans	$	86,708,745	$	86,404,304
Consumer Loans	59,064,397		56,331,013
Commercial Business Loans	24,221,626		22,234,189
Commercial Real Estate Loans	305,483,071		303,550,905
Total Loans Held For Investment	475,477,839		468,520,411
Loans Held For Sale	5,408,570		3,990,606
Total Loans Receivable, Gross	$	480,886,409	$	472,511,017
Less:
Allowance For Loan Losses	9,871,838		9,225,574
Loans in Process	10,622,153		9,957,140
Deferred Loan Fees	425,908		469,568
	20,919,899		19,652,282
Total Loans Receivable, Net	$	459,966,510	$	452,858,735

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.

8. Loans Receivable, Net, Continued

The tables below summarize the balance within each risk category by loan type, excluding loans held for sale, at March 31, 2020 and December 31, 2019.



March 31, 2020	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,650,860	$	5,302,605	$	1,060,055	$	3,695,225	$	86,708,745
Consumer	45,658,549		10,769,030		780,448		1,856,370		59,064,397
Commercial Business	18,275,291		5,074,669		438,534		433,132		24,221,626
Commercial Real Estate	236,711,024		52,122,797		14,162,480		2,486,770		305,483,071
Total	$	377,295,724	$	73,269,101	$	16,441,517	$	8,471,497	$	475,477,839



December 31, 2019	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	76,674,539	$	4,612,182	$	1,155,802	$	3,961,781	$	86,404,304
Consumer	44,294,400		9,617,301		624,248		1,795,064		56,331,013
Commercial Business	16,140,592		5,486,393		301,462		305,742		22,234,189
Commercial Real Estate	230,810,756		56,025,352		14,285,015		2,429,782		303,550,905
Total	$	367,920,287	$	75,741,228	$	16,366,527	$	8,492,369	$	468,520,411

The following tables present an age analysis of past due balances by loan category at March 31, 2020 and December 31, 2019:



	March 31, 2020
	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	$	493,064	$	—	$	706,590	$	1,199,654	$	85,509,091	$	86,708,745
Consumer	386,364		198,759		95,369		680,492		58,383,905		59,064,397
Commercial Business	751,042		23,257		169,506		943,805		23,277,821		24,221,626
Commercial Real Estate	4,508,722		138,935		1,226,852		5,874,509		299,608,562		305,483,071
Total	$	6,139,192	$	360,951	$	2,198,317	$	8,698,460	$	466,779,379	$	475,477,839



	December 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	$	—	$	355,290	$	144,209	$	499,499	$	85,904,805	$	86,404,304
Consumer	422,443		217,542		81,736		721,721		55,609,292		56,331,013
Commercial Business	147,959		76,515		20,316		244,790		21,989,399		22,234,189
Commercial Real Estate	3,849,424		—		1,352,716		5,202,140		298,348,765		303,550,905
Total	$	4,419,826	$	649,347	$	1,598,977	$	6,668,150	$	461,852,261	$	468,520,411

At March 31, 2020 and December 31, 2019, 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.

8. Loans Receivable, Net, Continued

The following table shows non-accrual loans by category at March 31, 2020 compared to December 31, 2019:



	March 31, 2020				December 31, 2019				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	1,773,173	0.4	%	$	1,520,485	0.3	%	$	252,688		16.6%
Consumer	402,084		0.1		319,280		0.1		82,804			25.9
Commercial Business	278,817		0.1		122,605		—		156,212			127.4
Commercial Real Estate	1,341,406		0.3		1,474,036		0.3		(132,630		)	(9.0)
Total Non-accrual Loans	$	3,795,480	0.9	%	$	3,436,406	0.7	%	$	359,074		10.4%

^{(1) PERCENT OF TOTAL LOANS HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.}

The following tables show the activity in the allowance for loan losses by category for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31, 2020
	Residential Real Estate		Consumer			Commercial Business			Commercial Real Estate		Total
Beginning Balance	$	1,390,594	$	1,210,849		$	544,764		$	6,079,367	$	9,225,574
Provision for Loan Losses	79,144		141,944			103,002			375,910		700,000
Charge-Offs	—		(47,107		)	(35,048		)	—		(82,155		)
Recoveries	600		22,599			—			5,220		28,419
Ending Balance	$	1,470,338	$	1,328,285		$	612,718		$	6,460,497	$	9,871,838



	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

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
March 31, 2020	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,470,338	$	1,470,338
Consumer	—		1,328,285		1,328,285
Commercial Business	—		612,718		612,718
Commercial Real Estate	—		6,460,497		6,460,497
Total	$	—	$	9,871,838	$	9,871,838



	Allowance For Loan Losses
December 31, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,390,594	$	1,390,594
Consumer	—		1,210,849		1,210,849
Commercial Business	—		544,764		544,764
Commercial Real Estate	—		6,079,367		6,079,367
Total	$	—	$	9,225,574	$	9,225,574

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, 2020	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,175,502	$	85,533,243	$	86,708,745
Consumer	180,171		58,884,226		59,064,397
Commercial Business	64,406		24,157,220		24,221,626
Commercial Real Estate	1,854,023		303,629,048		305,483,071
Total	$	3,274,102	$	472,203,737	$	475,477,839



	Loans Receivable
December 31, 2019	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	1,086,433	$	85,317,871	$	86,404,304
Consumer	184,402		56,146,611		56,331,013
Commercial Business	64,406		22,169,783		22,234,189
Commercial Real Estate	1,894,642		301,656,263		303,550,905
Total	$	3,229,883	$	465,290,528	$	468,520,411

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 $3.3 million for the three months ended March 31, 2020 compared to $6.7 million for the three months ended March 31, 2019.

The following tables present information related to impaired loans by loan category at March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019. There was no allowance recorded related to any impaired loans at March 31, 2020 and December 31, 2019.



	March 31, 2020						December 31, 2019
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	1,175,502	$	1,175,502	$	—	$	1,086,433	$	1,086,433	$	—
Consumer	180,171		188,471		—		184,402		192,702		—
Commercial Business	64,406		959,406		—		64,406		959,406		—
Commercial Real Estate	1,854,023		2,026,242		—		1,894,642		2,066,862		—
Total	$	3,274,102	$	4,349,621	$	—	$	3,229,883	$	4,305,403	$	—



	Three Months Ended March 31,
	2020				2019
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	1,185,056	$	1,195	$	1,361,079	$	—
Consumer	182,282		—		984,528		—
Commercial Business	64,406		—		77,206		—
Commercial Real Estate	1,874,528		15,560		2,884,732		14,247
With an Allowance Recorded:
Consumer	—		—		72,651		—
Commercial Real Estate	—		—		1,319,274		—
Total
Residential Real Estate	1,185,056		1,195		1,361,079		—
Consumer	182,282		—		1,057,179		—
Commercial Business	64,406		—		77,206		—
Commercial Real Estate	1,874,528		15,560		4,204,006		14,247
Total	$	3,306,272	$	16,755	$	6,699,470	$	14,247

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, 2020 and December 31, 2019 were $797,000 and $825,000, 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, 2020 and 2019. At March 31, 2020, no TDRs were in default. In comparison, at March 31, 2019, one TDR loan with a balance of $363,000 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, 2020 and 2019. 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.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 ("CARES Act") provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President or (B) December 31, 2020. At March 31, 2020 the Company had made six short-term modifications as a result of the COVID-19 pandemic.