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Loans and Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2017
Receivables [Abstract]  
Loans and Allowance for Loan Losses

3. Loans and Allowance for Loan Losses

 

Loans consisted of the following as of the dates indicated below:

 

    June 30,     December 31,  
(Dollars in thousands)   2017     2016  
             
One-to-four family residential real estate   $ 138,932     $ 136,846  
Construction and land     16,557       13,738  
Commercial real estate     116,600       118,200  
Commercial     51,631       54,506  
Agriculture     79,310       78,324  
Municipal     3,593       3,884  
Consumer     21,403       20,271  
Total gross loans     428,026       425,769  
Net deferred loan costs and loans in process     39       36  
Allowance for loan losses     (5,326 )     (5,344 )
Loans, net   $ 422,739     $ 420,461  

 

The following tables provide information on the Company’s activity in the allowance for loan losses by loan class:

 

(Dollars in thousands)   Three and six months ended June 30, 2017  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Agriculture     Municipal     Consumer     Total  
                                                 
Allowance for loan losses:                                                                
Balance at April 1, 2017   $ 493     $ 71     $ 1,740     $ 1,101     $ 1,731     $ 11     $ 180     $ 5,327  
Charge-offs     -       -       (61 )     -       -       -       (58 )     (119 )
Recoveries     7       -       -       1       -       -       10       18  
Provision for loan losses     (1 )     (1 )     30       (21 )     41       (1 )     53       100  
Balance at June 30, 2017     499       70       1,709       1,081       1,772       10       185       5,326  
                                                                 
Balance at January 1, 2017   $ 504     $ 53     $ 1,777     $ 1,119     $ 1,684     $ 12     $ 195     $ 5,344  
Charge-offs     (19 )     -       (61 )     -       -       -       (165 )     (245 )
Recoveries     8       -       -       9       1       -       59       77  
Provision for loan losses     6       17       (7 )     (47 )     87       (2 )     96       150  
Balance at June 30, 2017     499       70       1,709       1,081       1,772       10       185       5,326  

 

(Dollars in thousands)   Three and six months ended June 30, 2016  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Agriculture     Municipal     Consumer     Total  
                                                 
Allowance for loan losses:                                                                
Balance at April 1, 2016   $ 864     $ 82     $ 1,831     $ 1,384     $ 1,483     $ 24     $ 201     $ 5,869  
Charge-offs     -       -       -       (306 )     (83 )     -       (148 )     (537 )
Recoveries     3       -       -       1       -       6       10       20  
Provision for loan losses     (283 )     7       (55 )     314       200       (7 )     124       300  
Balance at June 30, 2016     584       89       1,776       1,393       1,600       23       187       5,652  
                                                                 
Balance at January 1, 2016   $ 925     $ 77     $ 1,740     $ 1,530     $ 1,428     $ 23     $ 199     $ 5,922  
Charge-offs     -       -       -       (306 )     (83 )     -       (285 )     (674 )
Recoveries     5       -       -       20       -       6       23       54  
Provision for loan losses     (346 )     12       36       149       255       (6 )     250       350  
Balance at June 30, 2016     584       89       1,776       1,393       1,600       23       187       5,652  

  

The following tables provide information on the Company’s activity in the allowance for loan losses by loan class and allowance methodology:

 

(Dollars in thousands)   As of June 30, 2017  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Agriculture     Municipal     Consumer     Total  
                                                 
Allowance for loan losses:                                                                
Individually evaluated for loss     -       -       50       76       149       -       -       275  
Collectively evaluated for loss     499       70       1,659       1,005       1,623       10       185       5,051  
Total     499       70       1,709       1,081       1,772       10       185       5,326  
                                                                 
Loan balances:                                                                
Individually evaluated for loss     732       2,041       2,206       323       868       221       36       6,427  
Collectively evaluated for loss     138,200       14,516       114,394       51,308       78,442       3,372       21,367       421,599  
Total   $ 138,932     $ 16,557     $ 116,600     $ 51,631     $ 79,310     $ 3,593     $ 21,403     $ 428,026  

 

(Dollars in thousands)   As of December 31, 2016
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Agriculture     Municipal     Consumer     Total  
                                                 
Allowance for loan losses:                                                                
Individually evaluated for loss     -       -       81       87       89       -       17       274  
Collectively evaluated for loss     504       53       1,696       1,032       1,595       12       178       5,070  
Total     504       53       1,777       1,119       1,684       12       195       5,344  
                                                                 
Loan balances:                                                                
Individually evaluated for loss     780       1,937       2,445       355       881       258       72       6,728  
Collectively evaluated for loss     136,066       11,801       115,755       54,151       77,443       3,626       20,199       419,041  
Total   $ 136,846     $ 13,738     $ 118,200     $ 54,506     $ 78,324     $ 3,884     $ 20,271     $ 425,769  

 

The Company’s impaired loans decreased from $6.7 million at December 31, 2016 to $6.4 million at June 30, 2017. 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 June 30, 2017 and December 31, 2016, was related to troubled debt restructurings (“TDR”) that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis was immaterial during the three and six month periods ended June 30, 2017 and 2016.

 

The following tables present information on impaired loans:

 

(Dollars in thousands)   As of June 30, 2017  
    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   $ 732     $ 732     $ 732     $ -     $ -     $ 739     $ 4  
Construction and land     3,776       2,041       2,041       -       -       2,010       33  
Commercial real estate     2,206       2,206       2,156       50       50       2,217       246  
Commercial     323       323       70       253       76       361       -  
Agriculture     1,083       868       49       819       149       933       1  
Municipal     221       221       221       -       -       236       3  
Consumer     36       36       36       -       -       39       -  
Total impaired loans   $ 8,377     $ 6,427     $ 5,305     $ 1,122     $ 275     $ 6,535     $ 287  

 

(Dollars in thousands)   As of December 31, 2016  
    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   $ 780     $ 780     $ 780     $ -     $ -     $ 798     $ 7  
Construction and land     3,672       1,937       1,937       -       -       2,068       72  
Commercial real estate     2,445       2,445       2,145       300       81       2,587       505  
Commercial     355       355       46       309       87       425       2  
Agriculture     1,173       881       147       734       89       1,000       2  
Municipal     258       258       258       -       -       418       -  
Consumer     72       72       55       17       17       78       13  
Total impaired loans   $ 8,755     $ 6,728     $ 5,368     $ 1,360     $ 274     $ 7,374     $ 601  

 

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 June 30, 2017 or December 31, 2016.

 

The following tables present information on the Company’s past due and non-accrual loans by loan class:

 

(Dollars in thousands)   As of June 30, 2017  
    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   $ 300     $ 316     $ -     $ 616     $ 557     $ 1,173     $ 137,759  
Construction and land     -       -       -       -       692       692       15,865  
Commercial real estate     1,971       42       -       2,013       69       2,082       114,518  
Commercial     176       1,315       -       1,491       323       1,814       49,817  
Agriculture     49       60       -       109       868       977       78,333  
Municipal     -       -       -       -       -       -       3,593  
Consumer     36       17       -       53       36       89       21,314  
 Total   $ 2,532     $ 1,750     $ -     $ 4,282     $ 2,545     $ 6,827     $ 421,199  
                                                         
Percent of gross loans     0.59 %     0.41 %     0.00 %     1.00 %     0.59 %     1.59 %     98.41 %

 

(Dollars in thousands)   As of December 31, 2016  
    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   $ 215     $ 388     $ -     $ 603     $ 595     $ 1,198     $ 135,648  
Construction and land     -       -       -       -       599       599       13,139  
Commercial real estate     -       -       -       -       300       300       117,900  
Commercial     13       5       -       18       342       360       54,146  
Agriculture     55       -       -       55       838       893       77,431  
Municipal     -       -       -       -       -       -       3,884  
Consumer     79       3       -       82       72       154       20,117  
 Total   $ 362     $ 396     $ -     $ 758     $ 2,746     $ 3,504     $ 422,265  
                                                         
Percent of gross loans     0.09 %     0.09 %     0.00 %     0.18 %     0.64 %     0.82 %     99.18 %

 

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the six months ended June 30, 2017 and 2016 would have increased interest income by $63,000 and $44,000, respectively. No interest income related to non-accrual loans was included in interest income for the six months ended June 30, 2017 and 2016.

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 such protection is 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:

 

(Dollars in thousands)   As of June 30, 2017     As of December 31, 2016  
    Nonclassified     Classified     Nonclassified     Classified  
                         
One-to-four family residential real estate   $ 137,803     $ 1,129     $ 135,640     $ 1,206  
Construction and land     15,865       692       13,138       600  
Commercial real estate     110,725       5,875       111,641       6,559  
Commercial     48,115       3,516       51,080       3,426  
Agriculture     74,727       4,583       73,564       4,760  
Municipal     3,593       -       3,884       -  
Consumer     21,356       47       20,181       90  
Total   $ 412,184     $ 15,842     $ 409,128     $ 16,641  

 

At June 30, 2017, the Company had 11 loan relationships consisting of 19 outstanding loans that were classified as TDRs. During the second quarter of 2017, the Company classified two agriculture loans totaling $87,000 as TDRs after renewing loans to an existing loan relationship that was classified as a TDR in 2016. During the first quarter of 2017, the Company classified an $11,000 commercial real estate loan as a TDR after extending the maturity of the loan and classified as a TDR a $15,000 agriculture loan extended to an existing loan relationship that was classified as a TDR in 2016. Since the commercial loan was adequately secured, no charge-offs or impairments were recorded against the principal as of June 30, 2017. The agriculture loan relationship had a $49,000 impairment recorded against the principal balance as of June 30, 2017 and a charge-off of $215,000 was recorded in the third quarter of 2016. During the second quarter of 2016, the Company classified two loans as TDRs including an $8,000 commercial loan after modifying the payments to interest only and a $188,000 one-to-four family residential real estate loan after agreeing to a loan modification which adjusted the payment schedule. No loans were classified as TDR in the first quarter of 2016.

 

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 June 30, 2017 and 2016. At June 30, 2017, there was a commitment of $63,000 to lend additional funds on one construction and land loan classified as a TDR. The Company did not record any charge-offs against loans classified as TDRs in the first six months either of 2017 or 2016. A credit provision for loan losses of $13,000 related to TDRs was recorded in the six months ended June 30, 2017 compared to no provision in the same period of 2016. The Company allocated $67,000 and $80,000 of the allowance for loan losses against loans classified as TDRs at June 30, 2017 and December 31, 2016, respectively.

 

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

 

(Dollars in thousands)   As of June 30, 2017     As of December 31, 2016  
    Number of loans     Non-accrual balance     Accruing balance     Number of loans     Non-accrual balance     Accruing balance  
                                     
One-to-four family residential real estate     2     $ -     $ 175       2     $ -     $ 185  
Construction and land     4       581       1,349       4       588       1,338  
Commercial real estate     4       61       2,137       3       64       2,145  
Commercial     -       -       -       2       -       13  
Agriculture     7       409       -       4       268       44  
Municipal     2       -       221       2       -       258  
Total troubled debt restructurings     19     $ 1,051     $ 3,882       17     $ 920     $ 3,983