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Loans

12 Months Ended

Dec. 31, 2015

Receivables [Abstract]

Loans

(3) Loans

The components of loans are as follows (in thousands):

		At December 31,
		2015				2014

Residential real estate		$	16,024			$	21,276
Multi-family real estate			3,697				1,979
Commercial real estate			29,029				31,255
Land and construction			5,258				6,177
Commercial			27,691				17,180
Consumer			3,015				20

Total loans			84,714				77,887

Add (deduct):
Net deferred loan fees, costs and premiums			154				186
Allowance for loan losses			(2,295	)			(2,244	)

Loans, net		$	82,573			$	75,829

An analysis of the change in the allowance for loan losses for the years ended December 31, 2015 and 2014 follows (in thousands):

		Residential Real Estate			Multi-Family Real Estate			Commercial Real Estate			Land and Construction			Commercial			Consumer			Unallocated			Total
*Year Ended December 31,*
*2015:*
Beginning balance		$	65		$	2		$	1,589		$	99		$	22		$	—		$	467		$	2,244
(Credit) provision for loan losses			35			24			(579	)		(44	)		132			138			294			—
Charge-offs			(289	)		—			—			—			—			—			—			(289	)
Recoveries			305			—			—			22			—			13			—			340

Ending balance		$	116		$	26		$	1,010		$	77		$	154		$	151		$	761		$	2,295

*Year Ended December 31, 2014:*
Beginning balance		$	49		$	4		$	934		$	458		$	61		$	—		$	705		$	2,211
(Credit) provision for loan losses			(4	)		(2	)		655			(359	)		(39	)		(13	)		(238	)		—
Charge-offs			—			—			—			—			—			—			—			—
Recoveries			20			—			—			—			—			13			—			33

Ending balance		$	65		$	2		$	1,589		$	99		$	22		$	—		$	467		$	2,244

The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2015 and 2014 follows (in thousands):

		Residential Real Estate			Multi-Family Real Estate			Commercial Real Estate			Land and Construction			Commercial			Consumer			Unallocated			Total
*At December 31,*
2015:
Individually evaluated for impairment:
Recorded investment		$	1,071		$	—		$	2,147		$	—		$	2,126		$	—		$	—		$	5,344
Balance in allowance for loan losses		$	—		$	—		$	—		$	—		$	13		$	—		$	—		$	13

Collectively evaluated for impairment:
Recorded investment		$	14,953		$	3,697		$	26,882		$	5,258		$	25,565		$	3,015		$	—		$	79,370
Balance in allowance for loan losses		$	116		$	26		$	1,010		$	77		$	141		$	151		$	761		$	2,282

*At December 31, 2014:*
Individually evaluated for impairment:
Recorded investment		$	4,838		$	—		$	4,096		$	—		$	1,151		$	—		$	—		$	10,085
Balance in allowance for loan losses		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Collectively evaluated for impairment:
Recorded investment		$	16,438		$	1,979		$	27,159		$	6,177		$	16,029		$	20		$	—		$	67,802
Balance in allowance for loan losses		$	65		$	2		$	1,589		$	99		$	22		$	—		$	467		$	2,244

The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. All loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source, value of the underlying property, credit history and stability. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Company’s Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers 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. Real estate development 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. Development 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, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for 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 business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards.

Consumer Loans. 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):

		Pass				OLEM (Other Loans Especially Mentioned)				Substandard				Doubtful				Loss				Total
*At December 31, 2015:*
Residential real estate		$	14,953			$	—			$	1,071			$	—			$	—			$	16,024
Multi-family real estate			3,697				—				—				—				—				3,697
Commercial real estate			26,309				573				2,147				—				—				29,029
Land and construction			5,212				46				—				—				—				5,258
Commercial			23,711				—				3,980				—				—				27,691
Consumer			3,015				—				—				—				—				3,015

Total		$	76,897			$	619			$	7,198			$	—			$	—			$	84,714

*At December 31, 2014:*
Residential real estate		$	15,170			$	—			$	6,106			$	—			$	—			$	21,276
Multi-family real estate			1,979				—				—				—				—				1,979
Commercial real estate			28,391				602				2,262				—				—				31,255
Land and construction			4,232				1,945				—				—				—				6,177
Commercial			12,938				—				4,242				—				—				17,180
Consumer			20				—				—				—				—				20

Total		$	62,730			$	2,547			$	12,610			$	—			$	—			$	77,887

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.

OLEM (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 as Doubtful has all the weaknesses inherent in one classified as 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. 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 charges off any loan classified as Doubtful.

Loss – a loan classified as 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
		30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Nonaccrual Loans			Total Loans
*At December 31, 2015:*
Residential real estate		$	—		$	—		$	—		$	—		$	14,953		$	1,071		$	16,024
Multi-family real estate			—			—			—			—			3,697			—			3,697
Commercial real estate			—			—			—			—			26,882			2,147			29,029
Land and construction			—			—			—			—			5,258			—			5,258
Commercial			—			—			—			—			26,606			1,085			27,691
Consumer			—			—			—			—			3,015			—			3,015

Total		$	—		$	—		$	—		$	—		$	80,411		$	4,303		$	84,714

*At December 31, 2014:*
Residential real estate		$	—		$	1,267		$	—		$	1,267		$	17,910		$	2,099		$	21,276
Multi-family real estate			—			—			—			—			1,979			—			1,979
Commercial real estate			293			—			—			293			29,895			1,067			31,255
Land and construction			—			—			—			—			6,177			—			6,177
Commercial			—			—			—			—			16,029			1,151			17,180
Consumer			—			—			—			—			20			—			20

Total		$	293		$	1,267		$	—		$	1,560		$	72,010		$	4,317		$	77,887

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

		At December 31, 2015									At December 31, 2014
		Recorded Investment			Unpaid Principal Balance			Related Allowance			Recorded Investment			Unpaid Principal Balance			Related Allowance
With no related allowance recorded:
Residential real estate		$	1,071		$	1,196		$	—		$	4,838		$	5,345		$	—
Commercial real estate			2,147			3,960			—			4,096			5,910			—
Commercial			1,085			1,326			—			1,151			1,392			—

With an allowance recorded:
Commercial		$	1,041		$	1,041		$	13		$	—		$	—		$	—

Total:
Residential real estate		$	1,071		$	1,196		$	—		$	4,838		$	5,345		$	—
Commercial real estate		$	2,147		$	3,960		$	—		$	4,096		$	5,910		$	—
Commercial		$	2,126		$	2,367		$	13		$	1,151		$	1,392		$	—

Total		$	5,344		$	7,523		$	13		$	10,085		$	12,647		$	—

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

		For the Year Ended December 31,
		2015									2014
		Average Recorded Investment			Interest Income Recognized			Interest Income Received			Average Recorded Investment			Interest Income Recognized			Interest Income Received

Residential real estate		$	4,473		$	175		$	236		$	5,929		$	421		$	317
Commercial real estate		$	3,496		$	57		$	172		$	4,421		$	253		$	204
Commercial		$	1,464		$	18		$	84		$	1,181		$	—		$	66

Total		$	9,433		$	250		$	492		$	11,531		$	674		$	587

There were no loans determined to be troubled debt restructurings during the years ended December 31, 2015 and 2014.