Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2015

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

(6) Loans and Allowance for Loan Losses

Loans consist of the following:

	As of December 31,
(Dollars in thousands)	2015		2014

One-to-four family residential real estate loans	$	131,930	$	127,555
Construction and land loans		15,043		21,950
Commercial real estate loans		118,983		118,411
Commercial loans		61,300		59,971
Agriculture loans		71,030		64,316
Municipal loans		7,635		8,982
Consumer loans		19,895		20,044
Total gross loans		425,816		421,229
Net deferred loan costs and loans in process		29		281
Allowance for loan losses		(5,922)		(5,320)
Loans, net	$	419,923	$	416,190

In the first quarter of 2015, the Company adjusted the historical loss analysis within the evaluation of the allowance for loan losses. The Company previously used a twelve quarter historical loss rate calculated by loan class. The updated historical loss analysis uses a migration analysis to track historical losses by loan class and risk categories over a longer period of time. In the opinion of management, the adjusted historical loss analysis more accurately allocates estimated losses. The adjustments resulted in reclassifications of the allocated allowance among various loan classes compared to December 31, 2014. The adjustments to the historical loss analysis did not have a significant impact on the total allowance for loan losses balance as of December 31, 2014. The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology:

(Dollars in thousands)
	Year ended December 31, 2015
	One-to-four family residential real estate loans		Construction and land loans		Commercial real estate loans		Commercial loans		Agriculture loans		Municipal loans		Consumer loans		Total

Allowance for loan losses:
Balance at January 1, 2015	$	755	$	762	$	1,832	$	836	$	915	$	51	$	169	$	5,320
Charge-offs		(57)		-		(13)		(78)		-		(88)		(318)		(554)
Recoveries		10		1,722		2		15		73		-		34		1,856
Provision for loan losses		217		(2,407)		(81)		757		440		60		314		(700)
Balance at December 31, 2015		925		77		1,740		1,530		1,428		23		199		5,922

Allowance for loan losses:
Individually evaluated for loss		78		-		-		-		-		-		10		88
Collectively evaluated for loss		847		77		1,740		1,530		1,428		23		189		5,834
Total		925		77		1,740		1,530		1,428		23		199		5,922

Loan balances:
Individually evaluated for loss		752		2,220		2,429		620		189		591		36		6,837
Collectively evaluated for loss		131,178		12,823		116,554		60,680		70,841		7,044		19,859		418,979
Total	$	131,930	$	15,043	$	118,983	$	61,300	$	71,030	$	7,635	$	19,895	$	425,816

(Dollars in thousands)
	Year ended December 31, 2014
	One-to-four family residential real estate		Construction and land		Commercial real estate		Commercial loans		Agriculture loans		Municipal loans		Consumer loans		Total

Allowance for loan losses:
Balance at January 1, 2014	$	732	$	1,343	$	1,970	$	769	$	545	$	47	$	134	$	5,540
Charge-offs		(29)		-		-		(783)		-		-		(237)		(1,049)
Recoveries		12		166		4		2		-		-		45		229
Provision for loan losses		40		(747)		(142)		848		370		4		227		600
Balance at December 31, 2014		755		762		1,832		836		915		51		169		5,320

Allowance for loan losses:
Individually evaluated for loss		287		-		17		28		5		-		12		349
Collectively evaluated for loss		468		762		1,815		808		910		51		157		4,971
Total		755		762		1,832		836		915		51		169		5,320

Loan balances:
Individually evaluated for loss		1,589		4,805		2,880		371		285		706		67		10,703
Collectively evaluated for loss		125,966		17,145		115,531		59,600		64,031		8,276		19,977		410,526
Total	$	127,555	$	21,950	$	118,411	$	59,971	$	64,316	$	8,982	$	20,044	$	421,229

	Year ended December 31, 2013
	One-to-four family residential real estate loans		Construction and land loans		Commercial real estate loans		Commercial loans		Agriculture loans		Municipal loans		Consumer loans		Total

Allowance for loan losses:
Balance at January 1, 2013	$	714	$	1,214	$	1,313	$	707	$	367	$	107	$	159	$	4,581
Charge-offs		(93)		(53)		(11)		(200)		-		(65)		(194)		(616)
Recoveries		202		523		-		20		-		-		30		775
Provision for loan losses		(91)		(341)		668		242		178		5		139		800
Balance at December 31, 2013		732		1,343		1,970		769		545		47		134		5,540

Allowance for loan losses:
Individually evaluated for loss		82		234		140		488		-		-		7		951
Collectively evaluated for loss		650		1,109		1,830		281		545		47		127		4,589
Total		732		1,343		1,970		769		545		47		134		5,540

Loan balances:
Individually evaluated for loss		782		8,160		2,936		4,148		-		706		24		16,756
Collectively evaluated for loss		124,305		15,616		116,454		57,235		62,287		8,140		18,576		402,613
Total	$	125,087	$	23,776	$	119,390	$	61,383	$	62,287	$	8,846	$	18,600	$	419,369

The Company’s impaired loans decreased from $10.7 million at December 31, 2014 to $6.8 million at December 31, 2015. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at December 31, 2015 and December 31, 2014 was related to TDRs that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis for impaired loans was immaterial during the years 2015, 2014, and 2013. The following tables present information on impaired loans:

(Dollars in thousands)
	As of December 31, 2015
	Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to- date average loan balance		Year-to- date interest income recognized

One-to-four family residential real estate loans	$	752	$	752	$	408	$	344	$	78	$	1,041	$	-
Construction and land loans		3,955		2,220		2,220		-		-		2,389		88
Commercial real estate loans		2,429		2,429		2,429		-		-		2,484		175
Commercial loans		637		620		620		-		-		634		3
Agriculture loans		189		189		189		-		-		188		3
Municipal loans		591		591		591		-		-		631		19
Consumer loans		36		36		10		26		10		41		-
Total impaired loans	$	8,589	$	6,837	$	6,467	$	370	$	88	$	7,408	$	288

	As of December 31, 2014
	Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to- date average loan balance		Year-to- date interest income recognized

One-to-four family residential real estate loans	$	1,589	$	1,589	$	167	$	1,422	$	287	$	1,611	$	-
Construction and land loans		6,540		4,805		4,805		-		-		6,366		235
Commercial real estate loans		2,880		2,880		2,833		47		17		3,009		24
Commercial loans		371		371		137		234		28		393		10
Agriculture loans		285		285		146		139		5		294		-
Municipal loans		772		706		706		-		-		772		19
Consumer loans		67		67		25		42		12		75		-
Total impaired loans	$	12,504	$	10,703	$	8,819	$	1,884	$	349	$	12,520	$	288

	As of December 31, 2013
	Unpaid contractual principal		Impaired loan balance		Impaired loans without an allowance		Impaired loans with an allowance		Related allowance recorded		Year-to- date average loan balance		Year-to- date interest income recognized

One-to-four family residential real estate loans	$	782	$	782	$	326	$	456	$	82	$	800	$	-
Construction and land loans		9,895		8,160		6,098		2,062		234		8,383		279
Commercial real estate loans		2,936		2,936		278		2,658		140		3,046		18
Commercial loans		4,148		4,148		154		3,994		488		192		-
Agriculture loans
Municipal loans		772		706		706		-		-		772		20
Consumer loans		24		24		6		18		7		26		-
Total impaired loans	$	18,557	$	16,756	$	7,568	$	9,188	$	951	$	13,219	$	317

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is ninety days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans ninety days delinquent and accruing interest at December 31, 2015 or December 31, 2014. The following tables present information on the Company’s past due and non-accrual loans by loan class:

(Dollars in thousands)
	As of December 31, 2015
	30-59 days delinquent and accruing			60-89 days delinquent and accruing			90 days or more delinquent and accruing			Total past due loans accruing			Non-accrual loans			Total past due and non- accrual loans			Total loans not past due

One-to-four family residential real estate loans	$	70		$	712		$	-		$	782		$	749		$	1,531		$	130,399
Construction and land loans		4			-			-			4			614			618			14,425
Commercial real estate loans		240			-			-			240			47			287			118,696
Commercial loans		90			40			-			130			583			713			60,587
Agriculture loans		174			5			-			179			139			318			70,712
Municipal loans		-			-			-			-			-			-			7,635
Consumer loans		65			2			-			67			36			103			19,792
Total	$	643		$	759		$	-		$	1,402		$	2,168		$	3,570		$	422,246

Percent of gross loans		0.15	%		0.18	%		0.00	%		0.33	%		0.51	%		0.84	%		99.16	%

	As of December 31, 2014
	30-59 days delinquent and accruing			60-89 days delinquent and accruing			90 days or more delinquent and accruing			Total past due loans accruing			Non- accrual loans			Total past due and non- accrual loans			Total loans not past due

One-to-four family residential real estate loans	$	127		$	50		$	-		$	177		$	1,585		$	1,762		$	125,793
Construction and land loans		163			-			-			163			1,322			1,485			20,465
Commercial real estate loans		-			-			-			-			2,488			2,488			115,923
Commercial loans		34			-			-			34			234			268			59,703
Agriculture loans		510			1			-			511			285			796			63,520
Municipal loans		-			-			-			-			65			65			8,917
Consumer loans		128			65			-			193			67			260			19,784
Total	$	962		$	116		$	-		$	1,078		$	6,046		$	7,124		$	414,105

Percent of gross loans		0.23	%		0.03	%		0.00	%		0.26	%		1.44	%		1.69	%		98.31	%

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the years 2015, 2014 and 2013, would have increased interest income by $99,000, $525,000 and $511,000, respectively. No interest income related to non-accrual loans was included in interest income for the years ended December 31, 2015, 2014 and 2013.

The Company also categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Non-classified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:

Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following table provides information on the Company’s risk categories by loan class:

	As of December 31, 2015				As of December 31, 2014
(Dollars in thousands)	Nonclassified		Classified		Nonclassified		Classified

One-to-four family residential real estate loans	$	130,575	$	1,355	$	123,823	$	3,732
Construction and land loans		14,429		614		18,815		3,135
Commercial real estate loans		111,016		7,967		111,428		6,983
Commercial loans		58,862		2,438		57,122		2,849
Agriculture loans		68,186		2,844		63,101		1,215
Municipal loans		7,635		-		8,894		88
Consumer loans		19,839		56		19,977		67
Total	$	410,542	$	15,274	$	403,160	$	18,069

At December 31, 2015, the Company had ten loan relationships consisting of fourteen outstanding loans totaling $5.3 million that were classified as TDRs compared to ten relationships consisting of fifteen outstanding loans totaling $5.4 million that were classified as TDRs at December 31, 2014.

During 2015, the Company classified a $2.0 million commercial real estate loan relationship as a TDR after agreeing to a bankruptcy plan with the borrower. The bankruptcy plan restarted the amortization period of the loans which extended the maturities. The commercial real estate loan relationship totaled $4.4 million in 2012 when the loans were placed on non-accrual status after the borrower declared bankruptcy. The outstanding balances have been partially paid down with proceeds from asset sales and cash flows from the properties securing the loans during the bankruptcy process and under the terms of the restructuring agreement. The relationship was returned to accrual status during 2015 based on a satisfactory payment performance by the borrower under the revised terms of the bankruptcy plan. The Company also classified a $50,000 agriculture loan relationship consisting of two loans as a TDR after extending the maturity of the loans during 2015. Since all of the loans were adequately secured, no charge-offs or impairments were recorded against the principal as of December 31, 2015. During 2015, a land loan relationship consisting of three loans totaling $1.6 million, which was previously classified as a TDR during 2012, paid off with proceeds from the sale of assets and a new loan originated at market terms on the remaining assets. Also during 2015, a $78,000 commercial loan, which was classified as a TDR during 2014, paid off.

During 2014, the Company classified a $128,000 commercial real estate loan, a $146,000 agriculture loan, and two commercial loans totaling $59,000 and $78,000, as TDRs after modifying the amortization schedule of the loans to align with the borrowers’ cash flows. Since the loans were adequately secured, no impairment was recorded against the principal as of December 31, 2014.

During 2013, the Company classified a $278,000 commercial real estate loan as a TDR after modifying the loan payments to interest only in order to allow the borrower additional time to liquidate the properties securing the loan. Since the loan was adequately secured, no impairment was recorded against the principal as of December 31, 2013.

The Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of December 31, 2015, 2014 and 2013. At December 31, 2015, there was a commitment of $84,000 to lend additional funds on one construction and land loan classified as a TDR. The Company had no allowance recorded against loans classified as TDRs at December 31, 2015 or December 31, 2014.

The following table presents information on loans that were classified as TDRs:

(Dollars in thousands)
	As of December 31, 2015						As of December 31, 2014
	Number of		Non-accrual		Accruing		Number of		Non-accrual		Accruing
	loans		balance		balance		loans		balance		balance

One-to-four family residential real estate loans		2	$	55	$	3		1	$	-	$	4
Construction and land loans		4		600		1,606		7		613		3,483
Commercial real estate loans		3		-		2,382		2		-		392
Commerical loans		1		-		37		2		-		137
Agriculture		2		-		50		1		146		-
Municipal loans		2		-		591		2		-		641
Total troubled debt restructurings		14	$	655	$	4,669		15	$	759	$	4,657

The Company had loans and unfunded commitments to directors and officers, and to affiliated parties, at December 31, 2015 and 2014. A summary of such loans and unfunded commitments is as follows:

(Dollars in thousands)

Balance at December 31, 2014	$	10,310
New loans		1,580
Repayments		(390)
Balance at December 31, 2015	$	11,500