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Loans

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Loans

(3)

Loans. The segments of loans are as follows (in thousands):

		At June 30,				At December 31,
		2014				2013

Residential real estate		$	22,067			$	26,468
Multi-family real estate			3,542				3,605
Commercial real estate			28,297				27,883
Land and construction			6,234				6,459
Commercial			13,409				16,584
Consumer			25				81

Total loans			73,574				81,080

Add (deduct):
Net deferred loan fees, costs and premiums			216				380
Allowance for loan losses			(2,238	)			(2,211	)

Loans, net		$	71,552			$	79,249

An analysis of the change in the allowance for loan losses follows (in thousands):

		Residential				Multi- Family				Commercial				Land
		Real				Real				Real				and
		Estate				Estate				Estate				Construction				Commercial				Consumer				Unallocated				Total
Three Months Ended June 30, 2014:
Beginning balance		$	51			$	6			$	1,111			$	451			$	80			$	—			$	514			$	2,213
Provision (credit) for loan losses			(16	)			—				158				(19	)			(14	)			(3	)			(106	)			—
Charge-offs			—				—				—				—				—				—				—				—
Recoveries			20				1				1				—				—				3				—				25

Ending balance		$	55			$	7			$	1,270			$	432			$	66			$	—			$	408			$	2,238

Six Months Ended June 30, 2014:
Beginning balance		$	49			$	4			$	934			$	459			$	61			$	—			$	704			$	2,211
Provision (credit) for loan losses			(14	)			2				336				(27	)			5				(6	)			(296	)			—
Charge-offs			—				—				—				—				—				—				—				—
Recoveries			20				1				—				—				—				6				—				27

Ending balance		$	55			$	7			$	1,270			$	432			$	66			$	—			$	408			$	2,238

Three Months Ended June 30, 2013:
Beginning balance		$	369			$	43			$	1,742			$	130			$	256			$	—			$				$	2,540
Provision (credit) for loan losses			(27	)			(27	)			1,018				(162	)			23				(3	)							822
Charge-offs			—				—				(950	)			—				—				—				—				(950	)
Recoveries			—				—				100				72				—				3				—				175

Ending balance		$	342			$	16			$	1,910			$	40			$	279			$	—			$				$	2,587

Six Months Ended June 30, 2013:
Beginning balance		$	434			$	267			$	1,372			$	166			$	216			$	4			$	—			$	2,459
Provision (credit) for loan losses			5				(251	)			2,585				(198	)			63				(10	)			—				2,194
Charge-offs			(97	)			—				(2,147	)			—				—				—				—				(2,244	)
Recoveries			—				—				100				72				—				6				—				178

Ending balance		$	342			$	16			$	1,910			$	40			$	279			$	0			$	—			$	2,587

		Residential				Multi- Family				Commercial				Land
		Real				Real				Real				and
		Estate				Estate				Estate				Construction				Commercial				Consumer				Unallocated				Total
At June 30, 2014:
Individually evaluated for impairment:
Recorded investment		$	5,140			$	—			$	4,146			$	—			$	1,183			$	—			$	—			$	10,469
Balance in allowance for loan losses		$	—			$	—			$	17			$	—			$	—			$	—			$	—			$	17

Collectively evaluated for impairment:
Recorded investment		$	16,927			$	3,542			$	24,151			$	6,234			$	12,226			$	25			$	—			$	63,105
Balance in allowance for loan losses		$	55			$	7			$	1,270			$	415			$	66			$	—			$	408			$	2,221

At December 31, 2013:
Individually evaluated for impairment:
Recorded investment		$	7,100			$	—			$	5,227			$	—			$	1,216			$	—			$	—			$	13,543
Balance in allowance for loan losses		$	—			$	—			$	192			$	—			$	—			$	—			$	—			$	192

Collectively evaluated for impairment:
Recorded investment		$	19,368			$	3,605			$	22,656			$	6,459			$	15,368			$	81			$	—			$	67,537
Balance in allowance for loan losses		$	49			$	4			$	742			$	458			$	61			$	—			$	705			$	2,019

The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with written policies set forth and approved by the Board of Directors (“Board”). The portfolio segments identified by the Company are as follows:

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. Multi-family real estate and commercial real estate loans are secured by the subject property and are underwritten based on among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Land and construction loans to borrowers are to finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Land and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Land and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

Commercial. Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets. These loans are also affected by adverse economic conditions should they prevail within the Company’s local market.

Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts.

The following summarizes the loan credit quality (in thousands):

						Other Loans
						Especially
		Pass				Mentioned				Substandard				Doubtful				Loss				Total
At June 30, 2014:
Residential real estate		$	15,653			$	—			$	6,414			$	—			$	—			$	22,067
Multi-family real estate			3,542				—				—				—				—				3,542
Commercial real estate			25,407				616				2,274				—				—				28,297
Land and construction			4,278				1,956				—				—				—				6,234
Commercial			8,507				—				4,902				—				—				13,409
Consumer			25				—				—				—				—				25

Total		$	57,412			$	2,572			$	13,590			$	—			$	—			$	73,574

At December 31, 2013:
Residential real estate		$	18,260			$	1,290			$	6,918			$	—			$	—			$	26,468
Multi-family real estate			3,605				—				—				—				—				3,605
Commercial real estate			18,544				2,539				6,800				—				—				27,883
Land and construction			4,493				1,966				—				—				—				6,459
Commercial			13,056				546				2,982				—				—				16,584
Consumer			81				—				—				—				—				81

Total		$	58,039			$	6,341			$	16,700			$	—			$	—			$	81,080

Internally assigned loan grades are defined as follows:

Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.

Other Loans Especially Mentioned – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.

Substandard – a Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – a loan classified Doubtful has all the weaknesses inherent in one classified Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company fully charges off any loan classified as Loss.

Age analysis of past-due loans is as follows (in thousands):

		Accruing Loans
										Greater
		30-59				60-89				Than 90
		Days				Days				Days				Total								Nonaccrual				Total
		Past Due				Past Due				Past Due				Past Due				Current				Loans				Loans
At June 30, 2014:
Residential real estate		$	—			$	—			$	—			$	—			$	19,699			$	2,368			$	22,067
Multi-family real estate			—				—				—				—				3,542				—				3,542
Commercial real estate			—				—				—				—				27,217				1,080				28,297
Land and construction			—				—				—				—				6,234				—				6,234
Commercial			—				—				—				—				12,226				1,183				13,409
Consumer			—				—				—				—				25				—				25

Total		$	—			$	—			$	—			$	—			$	68,943			$	4,631			$	73,574

At December 31, 2013:
Residential real estate		$	1,290			$	—			$	—			$	1,290			$	20,895			$	4,283			$	26,468
Multi-family real estate			—				—				—				—				3,605				—				3,605
Commercial real estate			—				—				—				—				24,565				3,318				27,883
Land and construction			—				—				—				—				6,459				—				6,459
Commercial			281				—				—				281				15,087				1,216				16,584
Consumer			—				—				—				—				81				—				81

Total		$	1,571			$	—			$	—			$	1,571			$	70,692			$	8,817			$	81,080

The following summarizes the amount of impaired loans (in thousands):

		At June 30, 2014												At December 31, 2013
						Unpaid												Unpaid
		Recorded				Principal				Related				Recorded				Principal				Related
		Investment				Balance				Allowance				Investment				Balance				Allowance
With no related allowance recorded:
Residential real estate		$	5,140			$	5,647			$	—			$	7,100			$	7,607			$	—
Commercial real estate			—				—				—				4,128				4,534				—
Commercial			1,183				1,425				—				1,216				1,458				—

With an allowance recorded-
Commercial real estate		$	4,146			$	5,960			$	17			$	1,099			$	2,913			$	192

Total:
Residential real estate		$	5,140			$	5,647			$	—			$	7,100			$	7,607			$	—
Commercial real estate		$	4,146			$	5,960			$	17			$	5,227			$	7,447			$	192
Commercial		$	1,183			$	1,425			$	—			$	1,216			$	1,458			$	—

Total		$	10,469			$	13,032			$	17			$	13,543			$	16,512			$	192

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

		Three Months Ended June 30,
		2014												2013
		Average				Interest				Interest				Average				Interest				Interest
		Recorded				Income				Income				Recorded				Income				Income
		Investment				Recognized				Received				Investment				Recognized				Received

Residential real estate		$	6,914			$	302			$	80			$	7,370			$	56			$	93
Commercial real estate		$	6,066			$	116			$	54			$	9,579			$	—			$	68
Land and construction		$	—			$	—			$	—			$	568			$	—			$	11
Commercial		$	1,202			$	—			$	16			$	—			$	—			$	—

Total		$	14,182			$	418			$	150			$	17,517			$	56			$	172

		Six Months Ended June 30,
		2014												2013
		Average				Interest				Interest				Average				Interest				Interest
		Recorded				Income				Income				Recorded				Income				Income
		Investment				Recognized				Received				Investment				Recognized				Received

Residential real estate		$	6,959			$	351			$	198			$	7,445			$	152			$	219
Commercial real estate		$	4,756			$	138			$	76			$	10,206			$	—			$	113
Land and construction		$	—			$	—			$	—			$	717			$	—			$	26
Commercial		$	1,313			$	—			$	33			$	—			$	—			$	—

Total		$	13,028			$	489			$	307			$	18,368			$	152			$	358

No loans have been determined to be troubled debt restructurings during the six months ended June 30, 2014 or 2013.