Loans and Allowance for Loan Losses | (5) Loans and Allowance for Loan Losses Loans consist of the following: As of December 31, (Dollars in thousands) 2017 2016 One-to-four family residential real estate loans $ 136,215 $ 136,846 Construction and land loans 19,356 13,738 Commercial real estate loans 120,624 118,200 Commercial loans 54,591 54,506 Agriculture loans 83,008 78,324 Municipal loans 3,396 3,884 Consumer loans 22,046 20,271 Total gross loans 439,236 425,769 Net deferred loan costs and loans in process (34 ) 36 Allowance for loan losses (5,459 ) (5,344 ) Loans, net $ 433,743 $ 420,461 The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology: (Dollars in thousands) Year ended December 31, 2017 One-to-four family residential real estate loans Construction and land loans Commercial real estate loans Commercial loans Agriculture loans Municipal loans Consumer loans Total Allowance for loan losses: Balance at January 1, 2017 $ 504 $ 53 $ 1,777 $ 1,119 $ 1,684 $ 12 $ 195 $ 5,344 Charge-offs (37 ) - (71 ) - (45 ) - (335 ) (488 ) Recoveries 11 - - 20 1 37 84 153 Provision for loan losses 64 128 (166 ) 87 172 (41 ) 206 450 Balance at December 31, 2017 542 181 1,540 1,226 1,812 8 150 5,459 Allowance for loan losses: Individually evaluated for loss 73 102 52 391 24 - - 642 Collectively evaluated for loss 469 79 1,488 835 1,788 8 150 4,817 Total 542 181 1,540 1,226 1,812 8 150 5,459 Loan balances: Individually evaluated for loss 747 2,031 3,973 2,002 833 140 34 9,760 Collectively evaluated for loss 135,468 17,325 116,651 52,589 82,175 3,256 22,012 429,476 Total $ 136,215 $ 19,356 $ 120,624 $ 54,591 $ 83,008 $ 3,396 $ 22,046 $ 439,236 (Dollars in thousands) Year ended December 31, 2016 One-to-four family residential real estate Construction and land Commercial real estate Commercial loans Agriculture loans Municipal loans Consumer loans Total Allowance for loan losses: Balance at January 1, 2016 $ 925 $ 77 $ 1,740 $ 1,530 $ 1,428 $ 23 $ 199 $ 5,922 Charge-offs (14 ) - - (306 ) (375 ) - (471 ) (1,166 ) Recoveries 9 - - 34 - 6 39 88 Provision for loan losses (416 ) (24 ) 37 (139 ) 631 (17 ) 428 500 Balance at December 31, 2016 504 53 1,777 1,119 1,684 12 195 5,344 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 Year ended December 31, 2015 One-to-four family residential real estate loans Construction and land loans Commercial real estate loans Commercial loans Agriculture loans Municipal loans Consumer loans Total Allowance for loan losses: Balance at January 1, 2015 $ 755 $ 762 $ 1,832 $ 836 $ 915 $ 51 $ 169 $ 5,320 Charge-offs (57 ) - (13 ) (78 ) - (88 ) (318 ) (554 ) Recoveries 10 1,722 2 15 73 - 34 1,856 Provision for loan losses 217 (2,407 ) (81 ) 757 440 60 314 (700 ) Balance at December 31, 2015 925 77 1,740 1,530 1,428 23 199 5,922 Allowance for loan losses: Individually evaluated for loss 78 - - - - - 10 88 Collectively evaluated for loss 847 77 1,740 1,530 1,428 23 189 5,834 Total 925 77 1,740 1,530 1,428 23 199 5,922 Loan balances: Individually evaluated for loss 752 2,220 2,429 620 189 591 36 6,837 Collectively evaluated for loss 131,178 12,823 116,554 60,680 70,841 7,044 19,859 418,979 Total $ 131,930 $ 15,043 $ 118,983 $ 61,300 $ 71,030 $ 7,635 $ 19,895 $ 425,816 The Company’s impaired loans increased $3.1 million from $6.7 million at December 31, 2016 to $9.8 million at December 31, 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 December 31, 2017 and December 31, 2016 was related to TDRs that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis for impaired loans was immaterial during the years 2017, 2016 and 2015. The following tables present information on impaired loans: (Dollars in thousands) As of December 31, 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 loans $ 747 $ 747 $ 503 $ 244 $ 73 $ 774 $ 8 Construction and land loans 3,766 2,031 430 1,601 102 2,033 65 Commercial real estate loans 3,973 3,973 3,888 85 52 3,989 490 Commercial loans 2,002 2,002 11 1,991 391 2,082 - Agriculture loans 1,048 833 545 288 24 912 1 Municipal loans 140 140 140 - - 192 5 Consumer loans 34 34 34 - - 35 - Total impaired loans $ 11,710 $ 9,760 $ 5,551 $ 4,209 $ 642 $ 10,017 $ 569 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 loans $ 780 $ 780 $ 780 $ - $ - $ 798 $ 7 Construction and land loans 3,672 1,937 1,937 - - 2,068 72 Commercial real estate loans 2,445 2,445 2,145 300 81 2,587 505 Commercial loans 355 355 46 309 87 425 2 Agriculture loans 1,173 881 147 734 89 1,000 2 Municipal loans 258 258 258 - - 418 - Consumer loans 72 72 55 17 17 78 13 Total impaired loans $ 8,755 $ 6,728 $ 5,368 $ 1,360 $ 274 $ 7,374 $ 601 As of December 31, 2015 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 loans $ 752 $ 752 $ 408 $ 344 $ 78 $ 1,041 $ - Construction and land loans 3,955 2,220 2,220 - - 2,389 88 Commercial real estate loans 2,429 2,429 2,429 - - 2,484 175 Commercial loans 637 620 620 - - 634 3 Agriculture loans 189 189 189 - - 188 3 Municipal loans 591 591 591 - - 631 19 Consumer loans 36 36 10 26 10 41 - Total impaired loans $ 8,589 $ 6,837 $ 6,467 $ 370 $ 88 $ 7,408 $ 288 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 December 31, 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 December 31, 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 loans $ 101 $ 313 $ - $ 414 $ 552 $ 966 $ 135,249 Construction and land loans - 4 - 4 779 783 18,573 Commercial real estate loans 22 209 - 231 1,841 2,072 118,552 Commercial loans - 397 - 397 2,002 2,399 52,192 Agriculture loans - - - - 833 833 82,175 Municipal loans - - - - - - 3,396 Consumer loans 105 204 - 309 34 343 21,703 Total $ 228 $ 1,127 $ - $ 1,355 $ 6,041 $ 7,396 $ 431,840 Percent of gross loans 0.05 % 0.26 % 0.00 % 0.31 % 1.38 % 1.68 % 98.32 % 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 loans $ 215 $ 388 $ - $ 603 $ 595 $ 1,198 $ 135,648 Construction and land loans - - - - 599 599 13,139 Commercial real estate loans - - - - 300 300 117,900 Commercial loans 13 5 - 18 342 360 54,146 Agriculture loans 55 - - 55 838 893 77,431 Municipal loans - - - - - - 3,884 Consumer loans 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 years 2017, 2016 and 2015, would have increased interest income by $185,000, $75,000 and $99,000, respectively. No interest income related to non-accrual loans was included in interest income for the years ended December 31, 2017, 2016 and 2015. 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 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: As of December 31, 2017 As of December 31, 2016 (Dollars in thousands) Nonclassified Classified Nonclassified Classified One-to-four family residential real estate loans $ 135,475 $ 740 $ 135,640 $ 1,206 Construction and land loans 18,577 779 $ 13,138 600 Commercial real estate loans 114,736 5,888 111,641 6,559 Commercial loans 52,313 2,278 51,080 3,426 Agriculture loans 76,455 6,553 73,564 4,760 Municipal loans 3,396 - 3,884 - Consumer loans 22,006 40 20,181 90 Total $ 422,958 $ 16,278 $ 409,128 $ 16,641 At December 31, 2017, the Company had twelve loan relationships consisting of twenty outstanding loans totaling $4.8 million that were classified as TDRs compared to eleven relationships consisting of seventeen outstanding loans totaling $4.9 million that were classified as TDRs at December 31, 2016. During 2017, the Company classified four agriculture loans totaling $98,000 as TDRs after refinancing existing loans to two agriculture loan relationships that were classified as TDRs in 2016 and 2015. The Company also classified a $104,000 agriculture loan as a TDR in 2017 after extending the maturity of the loan. The Company also classified a one-to-four family residential real estate loan totaling $25,000 as a TDR during 2017 after modifying the terms per a bankruptcy judgment. Also during 2017, the Company classified an $11,000 commercial real estate loan as a TDR after extending the maturity of the loan. The $11,000 commercial real estate loan was charged-off during 2017 as a result of the borrower failing to comply with the terms of the restructuring. During 2016, the Company classified a $268,000 agriculture loan relationship consisting of three loans as a TDR after extending the maturities of the loans. The collateral securing the loans was deemed to be insufficient, resulting in a charge-off of $215,000. The Company also classified an $8,000 commercial loan as a TDR during 2016 after modifying the payments to interest only. Also during 2016, the Company classified an $188,000 one-to-four family residential real estate loan as a TDR after agreeing to a loan modification which adjusted the payment schedule. During 2015, the Company classified a $2.0 million commercial real estate loan relationship as a TDR after agreeing to a bankruptcy plan with the borrower. The bankruptcy plan restarted the amortization period of the loans which extended the maturities. The commercial real estate loan relationship totaled $4.4 million in 2012 when the loans were placed on non-accrual status after the borrower declared bankruptcy. The outstanding balances have been partially paid down with proceeds from asset sales and cash flows from the properties securing the loans during the bankruptcy process and under the terms of the restructuring agreement. The relationship was returned to accrual status during 2015 based on a satisfactory payment performance by the borrower under the revised terms of the bankruptcy plan. The Company also classified a $50,000 agriculture loan relationship consisting of two loans as a TDR after extending the maturity of the loans during 2015. Since all of the loans were adequately secured, no charge-offs or impairments were recorded against the principal as of December 31, 2015. During 2015, a land loan relationship consisting of three loans totaling $1.6 million, which was previously classified as a TDR during 2012, paid off with proceeds from the sale of assets and a new loan originated at market terms on the remaining assets. Also during 2015, a $78,000 commercial loan, which was classified as a TDR during 2014, paid off. 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 was one commercial real estate loan totaling $11,000 that was classified as a TDR during 2017 which defaulted within 12 months of modification. The loan was charged-off as of December 31, 2017. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of December 31, 2016 and 2015. At December 31, 2017, there was a commitment of $10,000 to lend additional funds on one construction and land loan classified as a TDR. The Company recorded charge-offs of $11,000 and a credit provision for loan loss of $27,000 against TDRs during 2017. The Company recorded charge-offs of $215,000 and a provision for loan loss of $16,000 against TDRs during 2016. The Company had $80,000 of allowance for loan losses recorded against loans classified as TDRs at December 31, 2016. The following table presents information on loans that were classified as TDRs: (Dollars in thousands) As of December 31, 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 loans 2 $ - $ 194 2 $ - $ 185 Construction and land loans 4 575 1,252 4 588 1,338 Commercial real estate loans 3 45 2,133 3 64 2,145 Commerical loans - - - 2 - 13 Agriculture 9 471 - 4 268 44 Municipal loans 2 - 140 2 - 258 Total troubled debt restructurings 20 $ 1,091 $ 3,719 17 $ 920 $ 3,983 The Company had loans and unfunded commitments to directors and officers, and to affiliated parties, at December 31, 2017 and 2016. A summary of such loans is as follows: (Dollars in thousands) Balance at December 31, 2016 $ 15,758 New loans 8,800 Repayments (9,877 ) Balance at December 31, 2017 $ 14,681 |