Loans Receivable, Net | (3) Loans Receivable, Net 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 December 31, 2017 and December 31, 2016: December 31, 2017 December 31, 2016 Real estate loans: One-to-four $ 163,565 147,962 Home equity lines of credit 35,697 35,684 Junior liens (closed end) 1,184 1,452 Multi-family 37,445 34,284 Construction 30,246 39,255 Land 14,873 23,840 Non-residential 224,952 182,940 Farmland 36,851 47,796 Total mortgage loans 544,813 513,213 Consumer loans 8,620 8,717 Commercial loans 88,938 88,907 Total other loans 97,558 97,624 Total loans, gross 642,371 610,837 Deferred loan cost, net of fees (443 ) (439 ) Less allowance for loan losses (4,826 ) (6,112 ) Total loans $ 637,102 $ 604,286 Although the Company has a diversified loan portfolio, 84.8% and 84.0% of the portfolio was concentrated in loans secured by real estate at December 31, 2017 and December 31, 2016, respectively. At December 31, 2017 and December 31, 2016, the majority of these loans are located within the Company’s general operating areas of Western Kentucky and Middle and Western Tennessee. Risk Grade Classifications The Company uses the following risk definitions for commercial loan risk grades: 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 charge-off 120-day 180-day Loans by classification type and credit risk indicator at December 31, 2017 were as follows: Pass Special Substandard Doubtful Total One-to-four $ 162,993 — 572 — 163,565 Home equity line of credit 35,285 — 412 — 35,697 Junior liens 1,184 — — — 1,184 Multi-family 37,445 — — — 37,445 Construction 30,246 — — — 30,246 Land 14,318 — 555 — 14,873 Non-residential 216,901 979 7,072 — 224,952 Farmland 35,253 1,147 451 — 36,851 Consumer loans 8,376 — 244 — 8,620 Commercial loans 83,892 3,572 1,474 — 88,938 Total $ 625,893 5,698 10,780 — 642,371 Loans by classification type and credit risk indicator at December 31, 2016 were as follows: Pass Special Substandard Doubtful Total One-to-four $ 145,965 744 1,253 — 147,962 Home equity line of credit 35,109 25 550 — 35,684 Junior liens 1,411 30 11 — 1,452 Multi-family 31,280 — 3,004 — 34,284 Construction 39,255 — — — 39,255 Land 15,581 35 8,224 — 23,840 Non-residential 172,395 3 10,542 — 182,940 Farmland 44,832 674 2,290 — 47,796 Consumer loans 8,382 — 335 — 8,717 Commercial loans 85,174 603 3,130 — 88,907 Total $ 579,384 2,114 29,339 — 610,837 Impaired loans by classification type and the related valuation allowance amounts at December 31, 2017 were as follows: At December 31, 2017 For the year ended Recorded Unpaid Related Average Interest Impaired loans with no specific allowance One-to-four $ 257 257 — 1,235 35 Home equity line of credit — — — 447 26 Junior liens — — — 6 — Multi-family — — — 1,135 — Construction — — — — — Land 515 515 — 837 44 Non-residential 7,086 7,086 — 8,979 395 Farmland 444 444 — 1,094 35 Consumer loans — — — 8 2 Commercial loans 875 875 — 1,571 46 Total 9,177 9,177 — 15,312 583 Impaired loans with a specific allowance One-to-four $ — — — — — Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — — — Construction — — — — — Land — — — 4,006 — Non-residential 2 2 2 88 2 Farmland — — — 195 — Consumer loans 217 217 54 248 — Commercial loans 541 541 233 479 13 Total 760 760 289 5,016 15 Total impaired loans $ 9,937 9,937 289 20,328 598 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 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 Non-residential 10,542 10,542 — 9,363 485 Farmland 2,290 2,290 — 1,563 120 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 Non-residential — — — — — Farmland — — — 533 — Consumer loans 335 335 84 273 — Commercial loans 265 265 28 754 24 Total 7,271 7,271 1,148 4,733 509 Total impaired loans $ 29,339 30,299 1,148 31,594 1,529 Allowance for Loan Losses 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 if the loan is collateral dependent. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A management reporting system supplements the review process by providing the Company with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner . non-residential non-owner The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of December 31, 2017 and December 31, 2016 by portfolio segment and based on the impairment method as of December 31, 2017 and December 31, 2016. Commercial Land Commercial Residential Consumer Total December 31, 2017: Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 233 — 2 — 54 289 Collectively evaluated for impairment 614 1,384 1,468 941 130 4,537 Total ending allowance balance $ 847 1,384 1,470 941 184 4,826 Loans: Loans individually evaluated for impairment $ 1,416 515 7,532 257 217 9,937 Loans collectively evaluated for impairment 87,522 44,604 291,716 200,189 8,403 632,434 Total ending loans balance $ 88,938 45,119 299,248 200,446 8,620 642,371 Commercial Land Commercial Residential Consumer Total 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 average recorded investment in impaired loans for the years ended December 31, 2017 and 2016 was $20.3 million and $31.6 million, respectively. For the year ended December 31, 2017, the Company recognized $598,000 of interest income on impaired loans as compared to $1.5 million of interest income on impaired loans for the years ended December 31, 2016. The following table provides a detail of the Company’s activity in the allowance for loan loss account allocated by loan type for the years ended December 31, 2017, December 31, 2016 and December 31, 2015: December 31, 2017 Balance Charge Recovery Provision Ending One-to-four $ 852 (66 ) 13 (52 ) 747 Home equity line of credit 260 — 12 (83 ) 189 Junior liens 8 — 4 (7 ) 5 Multi-family 412 — 417 (515 ) 314 Construction 277 — — (116 ) 161 Land 1,760 (2,608 ) 559 1,512 1,223 Non-residential 964 — 16 (191 ) 789 Farmland 778 — 10 (421 ) 367 Consumer loans 208 (261 ) 87 150 184 Commercial loans 593 (224 ) 278 200 847 $ 6,112 (3,159 ) 1,396 477 4,826 December 31, 2016 Balance Charge Recovery Provision Ending 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 Non-residential 1,139 — 10 (185 ) 964 Farmland 358 — — 420 778 Consumer loans 358 (422 ) 293 (21 ) 208 Commercial loans 623 (595 ) 141 424 593 $ 5,700 (1,468 ) 639 1,241 6,112 December 31, 2015 Balance Charge off Recovery Provision Ending One-to-four $ 1,198 (143 ) 39 (64 ) 1,030 Home equity line of credit 181 (92 ) 10 102 201 Junior liens 14 — 4 (10 ) 8 Multi-family 85 — — 142 227 Construction 146 — — 231 377 Land 1,123 (911 ) — 1,167 1,379 Non-residential 2,083 (222 ) 2 (724 ) 1,139 Farmland 461 — — (103 ) 358 Consumer loans 494 (298 ) 118 44 358 Commercial loans 504 (201 ) 54 266 623 $ 6,289 (1,867 ) 227 1,051 5,700 Non-accrual non-accrual non-accrual non-accrual 12/31/2017 12/31/2016 One-to-four $ 266 $ 270 Home equity lines of credit 402 402 Junior lien 4 — Land 40 7,675 Non-residential — 208 Farmland 111 — Consumer loans 3 3 Commercial loans 459 516 Total non-accrual $ 1,285 $ 9,074 The table below presents gross loan balances excluding deferred loan fees of $443,000 at December 31, 2017 by loan classification allocated between past due, performing and non-accrual: Currently 30 – 89 More than Non-accrual Total One-to-four $ 163,030 181 88 266 $ 163,565 Home equity line of credit 35,295 — — 402 35,697 Junior liens 1,180 — — 4 1,184 Multi-family 37,445 — — — 37,445 Construction 30,246 — — — 30,246 Land 14,833 — — 40 14,873 Non-residential 224,743 209 — — 224,952 Farmland 36,740 — — 111 36,851 Consumer loans 8,614 3 — 3 8,620 Commercial loans 88,479 — — 459 88,938 Total $ 640,605 393 88 1,285 642,371 The table below presents gross loan balances excluding deferred loan fees of $439,000 at December 31, 2016 by loan classification allocated between past due, performing and non-accrual: Currently 30 – 89 Non-accrual Total One-to-four $ 146,796 896 270 $ 147,962 Home equity line of credit 35,260 22 402 35,684 Junior liens 1,448 4 — 1,452 Multi-family 34,284 — — 34,284 Construction 39,255 — — 39,255 Land 16,165 — 7,675 23,840 Non-residential 182,732 — 208 182,940 Farmland 47,796 — — 47,796 Consumer loans 8,686 28 3 8,717 Commercial loans 88,130 261 516 88,907 Total $ 600,552 1,211 9,074 610,837 Troubled Debt Restructuring On a periodic basis, the Company may modify the terms of certain loans. In evaluating whether a restructuring constitutes a TDR, ASC 310; A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, a.) The restructuring constitutes a concession b.) The debtor is experiencing financial difficulties ASC 310 provides the following guidance for the Company’s evaluation of whether it has granted a concession. If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the Company may have granted a concession. In that circumstance, the Company should consider all aspects of the restructuring in determining whether it has granted a concession, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR. A temporary or permanent increase in the interest rate on a loan as a result of a restructuring does not eliminate the possibility of the restructuring from being considered a concession if the new interest rate on the loan is below the market interest rate for loans of similar risk characteristics. A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Company must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant. There were no loans as of December 31, 2017, December 31, 2016 and December 31, 2015 that were been modified as TDRs and within twelve months of the modification subsequently defaulted on their modified terms. At December 31, 2017 and December 31, 2016, there were no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR. A summary of the activity in loans classified as TDRs for the year ended December 31, 2017 is as follows: Balance at New Loss on Transferred to Non-accrual Loan Balance at Multi-family real estate $ 815 — — — (815 ) — Non-residential 5,646 — — — (2,483 ) 3,163 Total performing TDR $ 6,461 — — — (3,298 ) 3,163 During the year ended December 31, 2017, there were no new loans modified as TDR. A summary of the activity in loans classified as TDRs for the year ended December 31, 2016 is as follows: Balance at New Loss on Transferred to Non-accrual Loan Balance at Multi-family real estate $ — 816 — — (1 ) 815 Non-residential 5,536 228 — — (118 ) 5,646 Total performing TDR $ 5,536 1,044 — — (119 ) 6,461 During the year ended December 31, 2016, the Company made financial concessions to one borrower having four loans totaling $1.04 million that resulted in in a TDR classification. The loans were secured by three multi-family real estate properties and one parcel of non-residential A summary of the activity in loans classified as TDRs for the year ended December 31, 2015 is as follows: Balance at New Loss on Transferred to Non-accrual Loan Balance at Non-residential $ 3,284 2,265 — — (13 ) 5,536 Total performing TDR $ 3,284 2,265 — — (13 ) 5,536 During the year ended December 31, 2015 there were six new loans to one borrower modified as TDR. The loans included one commercial vehicle, two parcels of non-residential non-residential The Company originates loans to officers and directors and their affiliates at terms substantially equivalent to those available to other borrowers. Loans to officers and directors at December 31, 2017 and December 31, 2016, were approximately $5.9 million and $4.9 million, respectively. At December 31, 2017 and December 31, 2016, funds committed that were undisbursed to officers and directors approximated $1.5 million and $380,000, respectively. The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2017 and December 31, 2016: 2017 2016 Balance at beginning of period $ 4,894 3,844 New loans 3,043 1,651 Principal repayments (2,004 ) (601 ) Balance at end of period $ 5,933 4,894 |