Loans and Allowance for Loan Losses | (5) Loans and Allowance for Loan Losses Loans consisted of the following: As of December 31, (Dollars in thousands) 2018 2017 One-to-four family residential real estate loans $ 136,895 $ 136,215 Construction and land loans 20,083 19,356 Commercial real estate loans 138,967 120,624 Commercial loans 74,289 54,591 Agriculture loans 96,632 83,008 Municipal loans 2,953 3,396 Consumer loans 25,428 22,046 Total gross loans 495,247 439,236 Net deferred loan costs and loans in process (109 ) (34 ) Allowance for loan losses (5,765 ) (5,459 ) Loans, net $ 489,373 $ 433,743 The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology: Year ended December 31, 2018 (Dollars in thousands) 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, 2018 $ 542 $ 181 $ 1,540 $ 1,226 $ 1,812 $ 8 $ 150 $ 5,459 Charge-offs (32 ) - - (950 ) - - (178 ) (1,160 ) Recoveries 4 - 1 22 1 2 36 66 Provision for loan losses (65 ) (13 ) 145 753 425 (3 ) 158 1,400 Balance at December 31, 2018 $ 449 $ 168 $ 1,686 $ 1,051 $ 2,238 $ 7 $ 166 $ 5,765 Allowance for loan losses: Individually evaluated for loss $ 100 $ 103 $ 67 $ 27 $ 13 $ - $ - $ 310 Collectively evaluated for loss 349 65 1,619 1,024 2,225 7 166 5,455 Total $ 449 $ 168 $ 1,686 $ 1,051 $ 2,238 $ 7 $ 166 $ 5,765 Loan balances: Individually evaluated for loss $ 623 $ 1,808 $ 3,912 $ 1,528 $ 717 $ 58 $ 45 $ 8,691 Collectively evaluated for loss 136,272 18,275 135,055 72,761 95,915 2,895 25,383 486,556 Total $ 136,895 $ 20,083 $ 138,967 $ 74,289 $ 96,632 $ 2,953 $ 25,428 $ 495,247 Year ended December 31, 2017 (Dollars in thousands) 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, 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 Year ended December 31, 2016 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, 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 The Company’s impaired loans decreased $1.1 million from $9.8 million at December 31, 2017 to $8.7 million at December 31, 2018. 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, 2018 and December 31, 2017 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 2018, 2017 and 2016. The following tables present information on impaired loans: As of December 31, 2018 (Dollars in thousands) 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 $ 623 $ 623 $ 413 $ 210 $ 100 $ 640 $ 10 Construction and land loans 3,543 1,808 1,383 425 103 2,689 53 Commercial real estate loans 3,912 3,912 2,120 1,792 67 3,928 487 Commercial loans 1,528 1,528 1,446 82 27 1,537 - Agriculture loans 932 717 529 188 13 844 52 Municipal loans 58 58 58 - - 58 1 Consumer loans 45 45 45 - - 49 - Total impaired loans $ 10,641 $ 8,691 $ 5,994 $ 2,697 $ 310 $ 9,745 $ 603 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 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, 2018 or December 31, 2017. The following tables present information on the Company’s past due and non-accrual loans by loan class: As of December 31, 2018 (Dollars in thousands) 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 $ 131 $ 206 $ - $ 337 $ 442 $ 779 $ 136,116 Construction and land loans - 134 - 134 948 1,082 19,001 Commercial real estate loans 465 - - 465 1,791 2,256 136,711 Commercial loans 398 20 - 418 1,528 1,946 72,343 Agriculture loans 100 88 - 188 482 670 95,962 Municipal loans - - - - - - 2,953 Consumer loans 106 23 - 129 45 174 25,254 Total $ 1,200 $ 471 $ - $ 1,671 $ 5,236 $ 6,907 $ 488,340 Percent of gross loans 0.24 % 0.10 % 0.00 % 0.34 % 1.06 % 1.40 % 98.60 % 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 % 1.37 % 1.68 % 98.32 % Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the years 2018, 2017 and 2016, would have increased interest income by $254,000, $185,000 and $75,000, respectively. No interest income related to non-accrual loans was included in interest income for the years ended December 31, 2018, 2017 and 2016. 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, 2018 As of December 31, 2017 (Dollars in thousands) Nonclassified Classified Nonclassified Classified One-to-four family residential real estate loans $ 135,947 $ 948 $ 135,475 $ 740 Construction and land loans 19,135 948 18,577 779 Commercial real estate loans 126,619 12,348 114,736 5,888 Commercial loans 66,490 7,799 52,313 2,278 Agriculture loans 86,917 9,715 76,455 6,553 Municipal loans 2,953 - 3,396 - Consumer loans 25,383 45 22,006 40 Total $ 463,444 $ 31,803 $ 422,958 $ 16,278 At December 31, 2018, the Company had ten loan relationships consisting of fourteen outstanding loans totaling $4.0 million that were classified as TDRs compared to twelve relationships consisting of twenty outstanding loans totaling $4.8 million that were classified as TDRs at December 31, 2017. During 2018, the Company classified an agriculture loan totaling $64,000 as a TDR after originating a loan to an existing loan relationship that was classified as a TDR in 2016. As part of the restructuring the borrower paid off three loans previously classified as TDRs. Since the agriculture loan relationship was adequately secured, no impairments were recorded against the principal as of December 31, 2018. The Company also classified a $36,000 commercial loan as a TDR after extending the maturity of the loan during 2018. The commercial loan had a $10,000 impairment recorded against the principal balance as of December 31, 2018. An agriculture loan relationship consisting of two loans that were originally classified as TDRs during 2015 and a municipal loan that was classified as a TDR in 2010 were both paid off in 2018. 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. 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, 2018 and 2016. At December 31, 2018, there was a commitment of $10,000 to lend additional funds on one construction and land loan classified as a TDR. The Company did not record any charge-offs against loans classified as TDRs during 2018 and recorded a credit provision for loan loss of $117,000 against TDRs during 2018. The Company recorded charge-offs of $11,000 and a provision for loan loss of $47,000 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 allocated $10,000 and $127,000 of the allowance for loan losses recorded against loans classified as TDRs at December 31, 2018 and 2017, respectively. The following table presents information on loans that were classified as TDRs: As of December 31, 2018 As of December 31, 2017 (Dollars in thousands) 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 $ - $ 181 2 $ - $ 195 Construction and land loans 4 523 860 4 575 1,252 Commercial real estate loans 2 - 2,121 3 45 2,132 Commerical loans 1 36 - - - - Agriculture 4 23 235 9 471 - Municipal loans 1 - 58 2 - 140 Total troubled debt restructurings 14 $ 582 $ 3,455 20 $ 1,091 $ 3,719 The Company had loans and unfunded commitments to directors and officers, and to affiliated parties, at December 31, 2018 and 2017. A summary of such loans is as follows: (Dollars in thousands) Balance at December 31, 2017 $ 14,681 New loans 11,909 Repayments (12,929 ) Balance at December 31, 2018 $ 13,661 |