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 • Non-residential non-owner non-residential • 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. • 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, 2018 and December 31, 2017: December 31, 2018 December 31, 2017 Real estate loans: One-to-four family (closed end) first mortgages $ 175,638 $ 163,565 Home equity lines of credit 32,781 35,697 Junior liens (closed end) 1,037 1,184 Multi-family 26,067 37,445 Construction 38,700 30,246 Land 12,175 14,873 Non-residential real estate 242,390 224,952 Farmland 34,041 36,851 Total mortgage loans 562,829 544,813 Consumer loans 8,442 8,620 Commercial loans 92,466 88,938 Total other loans 100,908 97,558 Total loans, gross 663,737 642,371 Deferred loan cost, net of fees (419 ) (443 ) Less allowance for loan losses (4,536 ) (4,826 ) Total loans $ 658,782 $ 637,102 Although the Company has a diversified loan portfolio, 84.8% of the portfolio was concentrated in loans secured by real estate at December 31, 2018 and December 31, 2017. At December 31, 2018 and December 31, 2017, 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 - All loans with a risk classification of watch or better are considered a pass credit. 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, 2018 were as follows: Special Pass Mention Substandard Doubtful Total One-to-four $ 174,973 — 665 — 175,638 Home equity line of credit 32,684 — 97 — 32,781 Junior liens 1,033 — 4 — 1,037 Multi-family 26,067 — — — 26,067 Construction 38,548 152 — — 38,700 Land 12,175 — — — 12,175 Non-residential 232,289 596 9,505 — 242,390 Farmland 33,808 233 — — 34,041 Consumer loans 8,233 — 209 — 8,442 Commercial loans 85,433 3,190 3,843 — 92,466 Total $ 645,243 4,171 14,323 — 663,737 Loans by classification type and credit risk indicator at December 31, 2017 were as follows: Special Pass Mention 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 Impaired loans by classification type and the related valuation allowance amounts at December 31, 2018 were as follows: For the year ended At December 31, 2018 December 31, 2018 Unpaid Average Interest Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized Impaired loans with no specific allowance One-to-four $ — — — 710 27 Home equity line of credit — — — 261 4 Junior liens — — — 2 — Multi-family — — — — — Construction — — — — — Land — — — 312 — Non-residential 9,174 9,174 — 5,973 693 Farmland — — — 111 — Consumer loans — — — 5 — Commercial loans 3,452 3,452 — 2,333 234 Total 12,626 12,626 — 9,707 958 Impaired loans with a specific allowance One-to-four $ 274 274 13 55 12 Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — — — Construction — — — — — Land — — — — — Non-residential — — — 1,115 — Farmland — — — — — Consumer loans 208 208 52 284 — Commercial loans 141 141 141 793 23 Total 623 623 206 2,247 35 Total impaired loans $ 13,249 13,249 206 11,954 993 Impaired loans by classification type and the related valuation allowance amounts at December 31, 2017 were as follows: For the year ended At December 31, 2017 December 31, 2017 Unpaid Average Interest Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized 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 The average recorded investment in impaired loans and income earned on impaired loans for the year ended December 31, 2016 was $31.6 million and $1.5 million, respectively. 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 At December 31, 2017, approximately $95.6 million of the outstanding principal balance of the Company’s non-residential 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, 2018 and December 31, 2017 by portfolio segment and based on the impairment method as of December 31, 2018 and December 31, 2017. Land Development / Commercial Residential Commercial Construction Real Estate Real Estate Consumer Total December 31, 2018: Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 141 — — 13 52 206 Collectively evaluated for impairment 534 969 1,616 1,151 60 4,330 Total ending allowance balance $ 675 969 1,616 1,164 112 4,536 Loans: Loans individually evaluated for impairment $ 3,593 — 9,174 274 208 $ 13,249 Loans collectively evaluated for impairment 88,873 50,875 293,324 209,182 8,234 650,488 Total ending loans balance $ 92,466 50,875 302,498 209,456 8,442 663,737 Land Development / Commercial Residential Commercial Construction Real Estate Real Estate 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 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, 2018, December 31, 2017 and December 31, 2016: Provision Ending Balance for Loan Balance December 31, 2018 12/31/2017 Charge off Recovery Loss 12/31/2018 One-to-four $ 747 (6 ) 13 238 992 Home equity line of credit 189 — 9 (30 ) 168 Junior liens 5 — — (1 ) 4 Multi-family 314 — — (142 ) 172 Construction 161 — — 10 171 Land 1,223 (40 ) — (386 ) 797 Non-residential 789 (23 ) 14 513 1,293 Farmland 367 (2 ) 1 (214 ) 152 Consumer loans 184 (329 ) 80 177 112 Commercial loans 847 (307 ) 12 123 675 $ 4,826 (707 ) 129 288 4,536 Provision Ending Balance for Loan Balance December 31, 2017 12/31/2016 Charge off Recovery Loss 12/31/2017 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 Non-residential real estate 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 Provision Ending Balance for Loan Balance December 31, 2016 12/31/2015 Charge off Recovery Loss 12/31/2016 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 Non-accrual non-accrual non-accrual non-accrual 12/31/2018 12/31/2017 One-to-four $ 62 $ 266 Home equity lines of credit 98 402 Junior lien 4 4 Construction 152 — Land — 40 Non-residential 581 — Farmland — 111 Consumer loans 8 3 Commercial loans 525 459 $ 1,430 $ 1,285 The table below presents gross loan balances at December 31, 2018 by loan classification allocated between past due, performing and non-accrual: Currently 30 – 89 Days More than 90 days past Non-accrual Performing Past Due Accruing Loans Total One-to-four $ 174,962 614 — 62 $ 175,638 Home equity line of credit 32,525 158 — 98 32,781 Junior liens 1,033 — — 4 1,037 Multi-family 26,067 — — — 26,067 Construction 38,548 — — 152 38,700 Land 12,175 — — — 12,175 Non-residential 241,809 — — 581 242,390 Farmland 34,041 — — — 34,041 Consumer loans 8,408 26 — 8 8,442 Commercial loans 91,930 11 — 525 92,466 Total $ 661,498 809 — 1,430 663,737 The table below presents gross loan balances at December 31, 2017 by loan classification allocated between past due, performing and non-accrual: Currently 30 – 89 Days More than 90 days past Non-accrual Performing Past Due Accruing Loans 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 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, 2018, December 31, 2017 and December 31, 2016 that were been modified as TDRs and within twelve months of the modification subsequently defaulted on their modified terms. At December 31, 2018 and December 31, 2017, there were no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR. There was no allowance for loan loss allocated to loans classified as a TDR at December 31, 2018 and December 31, 2017. A summary of the activity in loans classified as TDRs for the year ended December 31, 2018 is as follows: Balance at New Loss on Transferred to Non-accrual Loan Balance Non-residential $ 3,163 322 — — (62 ) $ 3,423 Commercial loans — 109 — — (2 ) 107 Total performing TDR $ 3,163 431 — — (64 ) $ 3,530 During the year ended December 31, 2018, the Company made modifications to three loans which resulted in a TDR classification. The two new commercial loans classified as a TDR are 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 both loans. Each loans current amortization period is in excess of the Company’s lending policy. Both loans have a one year balloon and will be re-evaluated non-residential 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 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 loans newly classified as a TDR. During the year ended December 31, 2016, the Company made financial concessions to one borrower having four loans totaling $1.0 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 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, 2018 and December 31, 2017, were approximately $5.2 million and $5.9 million, respectively. At December 31, 2018 and December 31, 2017, there were no loans to officers and directors that were past due, classified as a TDR, impaired or placed into non-accrual The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2018 and December 31, 2017: 2018 2017 Balance at beginning of period $ 5,933 4,894 New loans 931 3,043 Principal repayments (1,660 ) (2,004 ) Balance at end of period $ 5,204 5,933 |