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 March 31, 2018 and December 31, 2017. March 31, 2018 December 31, 2017 (Dollars in Thousands) Real estate loans: One-to-four $ 167,947 $ 163,565 Home equity lines of credit 34,261 35,697 Junior liens 1,181 1,184 Multi-family 37,977 37,445 Construction 40,484 30,246 Land 9,096 14,873 Non-residential 234,900 224,952 Farmland 34,830 36,851 Total mortgage loans 560,676 544,813 Consumer loans 8,514 8,620 Commercial loans 96,527 88,938 Total other loans 105,041 97,558 Total loans 665,717 642,371 Deferred loan fees, net of cost (539 ) (443 ) Less allowance for loan losses (4,654 ) (4,826 ) Total loans, net $ 660,524 $ 637,102 Although the Company has a diversified loan portfolio, 84.2% and 84.8% of the portfolio was concentrated in loans secured by real estate at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the majority of these loans are located within the Company’s general operating area. Risk Grade Classifications 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 The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2018: Balance Charge off Recovery Provision Ending One-to-four family mortgages 747 (6 ) 3 68 812 Home equity line of credit 189 — 2 (2 ) 189 Junior liens 5 — — 1 6 Multi-family 314 — — 1 315 Construction 161 — — 95 256 Land 1,223 — — (520 ) 703 Non-residential real estate 789 — 4 66 859 Farmland 367 — 1 29 397 Consumer loans 184 (69 ) 23 94 232 Commercial loans 847 (200 ) 2 236 885 4,826 (275 ) 35 68 4,654 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, 2017: Balance Charge offs Recoveries Provision Ending (Dollars in Thousands) One-to-four family mortgages $ 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 Farmland 778 — 10 (421 ) 367 Non-residential 964 — 16 (191 ) 789 Consumer loans 208 (261 ) 87 150 184 Commercial loans 593 (224 ) 278 200 847 Total $ 6,112 (3,159 ) 1,396 477 4,826 The table below presents past due and non-accrual non-performing: Currently 30 - 89 Past due Non-accrual Special Substandard Total (Dollars in Thousands) One-to-four family mortgages 166,672 162 521 104 488 167,947 Home equity line of credit 33,706 — — 530 — 25 34,261 Junior liens 1,177 — — 4 — — 1,181 Multi-family 37,977 — — — — — 37,977 Construction 39,939 — — — — 545 40,484 Land 8,659 — — 40 397 — 9,096 Non-residential real estate 226,036 206 — — 1,370 7,288 234,900 Farmland 33,438 — — 111 1,281 — 34,830 Consumer loans 8,038 39 — 2 0 435 8,514 Commercial loans 91,025 25 — 796 1,339 3,342 96,527 Total 646,667 432 — 2,004 4,491 12,123 665,717 The table below presents past due and non-accrual non-performing: Currently 30 - 89 Past due Non-accrual Special Substandard Total (Dollars in Thousands) One-to-four family $ 162,724 181 88 266 — 306 163,565 Home equity line of credit 35,285 — — 402 — 10 35,697 Junior liens 1,180 — — 4 — — 1,184 Multi-family 37,445 — — — — — 37,445 Construction 30,246 — — — — — 30,246 Land 14,322 — — 40 — 511 14,873 Non-residential 216,692 209 — — 979 7,072 224,952 Farmland 35,253 — — 111 1,147 340 36,851 Consumer loans 8,373 3 — 3 — 241 8,620 Commercial loans 83,892 — — 459 3,572 1,015 88,938 Total $ 625,412 393 88 1,285 5,698 9,495 642,371 At March 31, 2018, there were no loans more than 90 days past due and accruing interest. At December 31, 2017, there were $88,000 in 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 March 31, 2018 and December 31, 2017 by portfolio segment and based on the impairment method. Commercial Land Commercial Residential Consumer Total (Dollars in Thousands) March 31, 2018: Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 86 — 1 — 109 196 Collectively evaluated for impairment 799 959 1,570 1,007 123 4,458 Total ending allowance balance $ 885 959 1,571 1,007 232 4,654 Loans: Loans individually evaluated for impairment $ 3,823 505 5,439 252 434 10,453 Loans collectively evaluated for impairment 92,704 49,075 302,268 203,137 8,080 655,264 Total ending loans balance $ 96,527 49,580 307,707 203,389 8,514 665,717 Commercial Land Commercial Residential Consumer Total (Dollars in Thousands) 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 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. 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. Loans by classification type and credit risk indicator at March 31, 2018 and December 31, 2017 were as follows: March 31, 2018 Pass Special Substandard Doubtful Total (Dollars in Thousands) One-to-four $ 166,937 — 1,010 — 167,947 Home equity line of credit 33,706 — 555 — 34,261 Junior liens 1,181 — — — 1,181 Multi-family 37,977 — — — 37,977 Construction 40,484 — — — 40,484 Land 8,154 397 545 — 9,096 Non-residential 226,242 1,370 7,288 — 234,900 Farmland 33,438 1,281 111 — 34,830 Consumer loans 8,076 — 438 — 8,514 Commercial loans 90,949 1,443 4,135 — 96,527 Total $ 647,144 4,491 14,082 — 665,717 December 31, 2017 Pass Special Substandard Doubtful Total (Dollars in Thousands) 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 Impaired loans by classification type and the related valuation allowance amounts at March 31, 2018 were as follows: At March 31, 2018 For the three month period Recorded Unpaid Related Average Interest (Dollars in Thousands) Impaired loans with no specific allowance One-to-four $ 1,010 1,010 — 634 13 Home equity line of credit 555 555 — 278 6 Junior liens — — — — — Multi-family — — — — — Construction — — — — — Land 545 545 — 530 9 Non-residential 7,287 7,287 — 7,187 77 Farmland 111 111 — 278 — Consumer loans 4 4 — 2 — Commercial loans 3,996 4,196 — 2,436 61 Total 13,508 13,708 — 11,345 166 Impaired loans with a specific allowance One-to-four family mortgages — — — — — Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — — — Construction — — — — — Land — — — — — Non-residential 1 1 1 2 — Farmland — — — — — Consumer loans 434 434 109 326 — Commercial loans 139 139 86 340 — Total 574 574 196 668 — Total $ 14,082 14,282 196 12,013 166 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 (Dollars in Thousands) 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 At March 31, 2018 and December 31, 2017, non-accrual non-accrual non-accrual non-accrual March 31, 2018 December 31, 2017 (Dollars in Thousands) One-to-four family mortgages 521 266 Home equity line of credit 530 402 Junior Lien 4 4 Land 40 40 Farmland 111 111 Non-residential — — Consumer loans 2 3 Commercial loans 796 459 Total non-accrual 2,004 1,285 The following table provides the number of loans remaining in each category as of March 31, 2018 and December 31, 2017 that the Company had previously modified in a TDR: Number of Pre-Modification Post Modification March 31, 2018 Non-residential real estate 2 $ 3,163,435 3,163,435 Commercial 1 91,683 91,683 December 31, 2017 Non-residential 2 3,163,435 3,163,435 For the three month period ended March 31, 2018, the Company identified one additional commercial loan as a TDR. The loan is secured by equipment and inventory. The TDR classification is the result of the borrower’s declining financial condition, prompting the Company to lengthen the amortization period of the loan to twelve years. The length of the current amortization period is outside of our loan policy and results in a TDR classification. The loan has a one year balloon feature and the borrower’s financial condition will be re-evaluated |