Loans | (4) LOANS The Company uses the following loan segments as described below: • One-to-four closed-end non-owner • Home equity lines of credit may be first or second mortgages secured by one-to-four • Junior liens are closed-end one-to-four • Multi-family loans are closed-end • Constructions loans may consist of residential or commercial properties and carry a fixed or variable rate for the term of the construction period. Construction loans have a maturity of between twelve and twenty-four months depending on the type of property. After the construction period, loans are amortized over a twenty-year period. All construction loans are under written under the Company’s commercial loan underwriting guidelines for the type of property being constructed. • Land loans consist of properties currently under development, land held for future development and land held for recreational purposes. Land loans used for recreational purposes are amortized for twenty years and typically carry a fixed rate of interest for one-to-five • Loans classified as farmland by the Company include properties that are used exclusively for the production of grain, livestock, poultry or swine. Loans secured by farmland have a maturity of up to twenty years and carry a fixed rate of interest for five to ten years. Loans secured by farmland are under-written under the Company’s commercial loan underwriting guidelines. • Non-residential non-owner non-residential • The Company originates secured and unsecured consumer loans. Collateral for consumer loans may include deposits, brokerage accounts, automobiles and other personal items. Consumer loans are typically fixed for a term of one to five years and are under-written using the Company’s consumer loan policy. • The Company originates unsecured and secured commercial loans. Secured commercial loans may have business inventory, accounts receivable and equipment as collateral. The typical customer may include all forms of manufacturing, retail and wholesale sales, professional services and various forms of agri-business interest. Commercial loans may be fixed or variable rate and typically have terms between one and five years. Set forth below is selected data relating to the composition of the loan portfolio by type of loan at September 30, 2017 and December 31, 2016. September 30, 2017 December 31, 2016 (Dollars in Thousands) Real estate loans: One-to-four $ 165,926 $ 147,962 Home equity lines of credit 34,995 35,684 Junior liens 1,402 1,452 Multi-family 37,321 34,284 Construction 25,594 39,255 Land 14,289 23,840 Farmland 37,262 47,796 Non-residential 216,056 182,940 Total mortgage loans 532,845 513,213 Consumer loans 9,222 8,717 Commercial loans 88,515 88,907 Total other loans 97,737 97,624 Total loans 630,582 610,837 Deferred loan fees, net of cost (380 ) (439 ) Less allowance for loan losses (4,799 ) (6,112 ) Total loans, net $ 625,403 $ 604,286 Although the Company has a diversified loan portfolio, 84.5% and 84.0% of the portfolio was concentrated in loans secured by real estate at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, the majority of these loans are located within the Company’s general operating area of the United States. The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the nine month period ended September 30, 2017: Ending Balance Charge offs Recoveries Provision Balance 12/31/2016 2017 2017 2017 9/30/2017 (Dollars in Thousands) One-to-four $ 852 (49 ) 9 (79 ) 733 Home equity line of credit 260 — 10 (86 ) 184 Junior liens 8 — 2 (4 ) 6 Multi-family 412 — 417 (506 ) 323 Construction 277 — — (146 ) 131 Land 1,760 (2,608 ) 559 1,535 1,246 Farmland 778 — — (409 ) 369 Non-residential 964 — 13 (215 ) 762 Consumer loans 208 (200 ) 70 68 146 Commercial loans 593 (224 ) 267 263 899 Total $ 6,112 (3,081 ) 1,347 421 4,799 The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2016: Ending Balance Charge offs Recoveries Provision Balance 12/31/2015 2016 2016 2016 12/31/2016 (Dollars in Thousands) One-to-four $ 1,030 — 167 (345 ) 852 Home equity line of credit 201 (30 ) 14 75 260 Junior liens 8 — 14 (14 ) 8 Multi-family 227 (421 ) — 606 412 Construction 377 — — (100 ) 277 Land 1,379 — — 381 1,760 Farmland 358 — — 420 778 Non-residential 1,139 — 10 (185 ) 964 Consumer loans 358 (422 ) 293 (21 ) 208 Commercial loans 623 (595 ) 141 424 593 Total $ 5,700 (1,468 ) 639 1,241 6,112 The table below presents past due and non-accrual non-performing: 30 - 89 Impaired Loans Currently Days Non-accrual Special Currently Performing Performing Past Due Loans Mention Substandard Doubtful Total (Dollars in Thousands) One-to-four $ 164,817 582 333 51 143 — $ 165,926 Home equity line of credit 34,433 — 401 — 161 — 34,995 Junior liens 1,398 4 — — — — 1,402 Multi-family 37,321 — — — — — 37,321 Construction 25,594 — — — — — 25,594 Land 13,724 — 40 — 525 — 14,289 Farmland 35,626 — 455 1,147 34 — 37,262 Non-residential 207,765 165 — 778 7,348 — 216,056 Consumer loans 9,066 3 5 — 148 — 9,222 Commercial loans 83,246 — 505 3,645 1,119 — 88,515 Total $ 612,990 754 1,739 5,621 9,478 — $ 630,582 The table below presents past due and non-accrual non-performing: 30 - 89 Non- Impaired Loans Currently Days Accrual Special Currently Performing Performing Past Due Loans Mention Substandard Doubtful Total (Dollars in Thousands) One-to-four 145,069 896 270 744 983 — 147,962 Home equity line of credit 35,087 22 402 25 148 — 35,684 Junior liens 1,407 4 — 30 11 — 1,452 Multi-family 31,280 — — — 3,004 — 34,284 Construction 39,255 — — — — — 39,255 Land 15,581 — 7,675 35 549 — 23,840 Farmland 44,832 — — 674 2,290 — 47,796 Non-residential 172,395 — 208 3 10,334 — 182,940 Consumer loans 8,354 28 3 — 332 — 8,717 Commercial loans 84,913 261 516 603 2,614 — 88,907 Total 578,173 1,211 9,074 2,114 20,265 — 610,837 At September 30, 2017 and December 31, 2016, there were no loans more than 90 days past due accruing interest. The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of September 30, 2017 and December 31, 2016, by portfolio segment and based on the impairment method. Land Development / Commercial Residential Commercial Construction Real Estate Real Estate Consumer Total (Dollars in Thousands) September 30, 2017: Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 267 — 19 — 36 322 Collectively evaluated for impairment 632 1,377 1,435 923 110 4,477 Total ending allowance balance $ 899 1,377 1,454 923 146 4,799 Loans: Loans individually evaluated for impairment $ 1,624 565 7,837 1,038 153 11,217 Loans collectively evaluated for impairment 86,891 39,318 282,802 201,285 9,069 619,365 Total ending loans balance $ 88,515 39,883 290,639 202,323 9,222 630,582 Land Development / Commercial Residential Commercial Construction Real Estate Real Estate Consumer Total (Dollars in Thousands) December 31, 2016: Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 28 1,036 — — 84 1,148 Collectively evaluated for impairment 565 1,001 2,154 1,120 124 4,964 Total ending allowance balance $ 593 2,037 2,154 1,120 208 6,112 Loans: Loans individually evaluated for impairment $ 3,130 8,224 15,836 1,814 335 29,339 Loans collectively evaluated for impairment 85,777 54,871 249,184 183,284 8,382 581,498 Total ending loans balance $ 88,907 63,095 265,020 185,098 8,717 610,837 The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions and the market value of the underlying collateral. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred. The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based on pre-determined Excellent - Very Good - Satisfactory - Acceptable - Watch - Special Mention - Non-financial Substandard - Doubtful - work-out work-out Loss - The following credit risk standards are assigned to consumer loans: Satisfactory - open-end closed-end Substandard - open-end closed-end Loss - closed-end open-end 120-day 180-day A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. A summary of the Company’s loans by credit risk indicator and the related allowance at September 30, 2017 and December 31, 2016 were as follows: Impaired Loans September 30, 2017 Pass Special Substandard Doubtful Total Specific Allowance for (Dollars in Thousands) One-to-four $ 165,399 51 476 — 165,926 — 733 Home equity line of credit 34,433 — 562 — 34,995 — 184 Junior liens 1,402 — — — 1,402 — 6 Multi-family 37,321 — — — 37,321 — 323 Construction 25,594 — — — 25,594 — 131 Land 13,724 — 565 — 14,289 — 1,246 Farmland 35,626 1,147 489 — 37,262 17 352 Non-residential 207,930 778 7,348 — 216,056 2 760 Consumer loans 9,069 — 153 — 9,222 36 110 Commercial loans 83,246 3,645 1,624 — 88,515 267 632 Total $ 613,744 5,621 11,217 — 630,582 322 4,477 Impaired Loans December 31, 2016 Pass Special Substandard Doubtful Total Specific Allowance for (Dollars in Thousands) One-to-four $ 145,965 744 1,253 — 147,962 — 852 Home equity line of credit 35,109 25 550 — 35,684 — 260 Junior liens 1,411 30 11 — 1,452 — 8 Multi-family 31,280 — 3,004 — 34,284 — 412 Construction 39,255 — — — 39,255 — 277 Land 15,581 35 8,224 — 23,840 1,036 724 Farmland 44,832 674 2,290 — 47,796 — 778 Non-residential 172,395 3 10,542 — 182,940 — 964 Consumer loans 8,382 — 335 — 8,717 84 124 Commercial loans 85,174 603 3,130 — 88,907 28 565 Total $ 579,384 2,114 29,339 — 610,837 1,148 4,964 Impaired loans by classification type and the related valuation allowance amounts at September 30, 2017 were as follows: At September 30, 2017 For the nine month period Recorded Unpaid Related Average Interest (Dollars in Thousands) Impaired loans with no specific allowance One-to-four $ 476 476 — 1,480 26 Home equity line of credit 562 562 — 559 25 Junior liens — — — 8 — Multi-family — — — 1,419 — Construction — — — — — Land 565 565 — 918 35 Farmland 164 164 — 1,257 2 Non-residential 7,328 7,328 — 9,452 312 Consumer loans 9 9 — 10 — Commercial loans 1,125 1,125 — 1,745 35 Total 10,229 10,229 — 16,848 435 Impaired loans with a specific allowance One-to-four — — — — — Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — — — Construction — — — — — Land — — — 5,008 — Farmland 325 325 17 244 — Non-residential 20 20 2 110 2 Consumer loans 144 144 36 255 — Commercial loans 499 499 267 464 16 Total 988 988 322 6,081 18 Total $ 11,217 11,217 322 22,929 453 Impaired loans by classification type and the related valuation allowance amounts at December 31, 2016 were as follows: At December 31, 2016 For the year ended Recorded Unpaid Related Average Interest (Dollars in Thousands) Impaired loans with no specific allowance One-to-four $ 1,253 1,253 — 1,470 67 Home equity line of credit 550 550 — 390 24 Junior liens 11 11 — 13 1 Multi-family 3,004 3,004 — 3,005 172 Construction — — — — — Land 1,553 2,513 — 7,868 38 Farmland 2,290 2,290 — 1,563 120 Non-residential 10,542 10,542 — 9,363 485 Consumer loans — — — 21 1 Commercial loans 2,865 2,865 — 3,168 112 Total 22,068 23,028 — 26,861 1,020 Impaired loans with a specific allowance One-to-four — — 452 — Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — 910 — Construction — — — — — Land 6,671 6,671 1,036 1,811 485 Farmland — — — 533 — Non-residential — — — — — Consumer loans 335 335 84 273 — Commercial loans 265 265 28 754 24 Total 7,271 7,271 1,148 4,733 509 Total $ 29,339 30,299 1,148 31,594 1,529 On a periodic basis, the Bank may modify the terms of certain loans. At December 31, 2016, the Company had eight loans, representing three lending relationships, classified as performing TDR. During the nine month period ended September 30, 2017, the Company removed one lending relationship from TDR status and one lending relationship had three loans to pay off. One non-residential The following table provides the number of loans remaining in each category as of September 30, 2017 and December 31, 2016 that the Company had previously modified in a TDR: Number of Pre-Modification Post Modification September 30, 2017 Non-residential 3 $ 3,371,435 3,371,435 December 31, 2016 Multi-family 3 $ 815,273 815,273 Non-residential 5 5,646,223 5,646,223 There were no loans as of September 30, 2017 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At September 30, 2017, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR. |