Loans

3 Months Ended

Mar. 31, 2014

Receivables [Abstract]

Loans

(5) LOANS

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2014 and December 31, 2013. At March 31, 2014 and December 31, 2013, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

	March 31, 2014			March 31, 2014			December 31, 2013			December 31, 2013
	Amount			Percent			Amount			Percent
	(Dollars in thousands, except percentages)
Real estate loans:
One-to-four family (closed end) first mortgages	$	153,957			28.2	%	$	155,252			28.1	%
Second mortgages (closed end)		2,829			0.5	%		3,248			0.6	%
Home equity lines of credit		33,947			6.2	%		34,103			6.2	%
Multi-family		28,770			5.3	%		29,736			5.4	%
Construction		11,278			2.1	%		10,618			1.9	%
Land		34,154			6.3	%		34,681			6.3	%
Farmland		47,608			8.7	%		51,868			9.4	%
Non-residential real estate		154,083			28.3	%		157,692			28.5	%
Total mortgage loans		466,626			85.6	%		477,198			86.4	%
Consumer loans		15,260			2.8	%		11,167			2.0	%
Commercial loans		63,098			11.6	%		64,041			11.6	%
Total other loans		78,358			14.4	%		75,208			13.6	%
Total loans, gross		544,984			100.0	%		552,406			100.0	%
Deferred loan cost, net of income		(120	)					(92	)
Less allowance for loan losses		(8,913	)					(8,682	)
Total loans	$	535,951					$	543,632

The Bank assigns an industry standard NAICS code to each loan in the Bank’s portfolio. By assigning a standard code to each type of loan, management can more readily determine concentrations in risk by industry, location and loan type. This information is most useful when analyzing the Bank’s non-residential real estate loan portfolio. At March 31, 2014, and December 31, 2013, the Bank’s non-residential real estate loan portfolio was made up of the following loan types:

	Balance		Balance
	March 31, 2014		December 31, 2013
	(Dollars in Thousands)
Land	$	34,154	$	34,681
Manufacturing		3,907		3,962
Professional, Technical		1,784		1,819
Retail Trade		11,902		10,916
Other Services		18,846		21,307
Finance and Insurance		2,439		1,862
Agricultural, Forestry, Fishing & Hunting		47,608		51,868
Real Estate and Rental and Leasing		55,778		55,692
Wholesale Trade		21,486		21,852
Arts, Entertainment and Recreation		3,656		3,015
Accommodations / Food Service		24,004		26,552
Healthcare and Social Assistance		6,668		6,862
Transportation and Warehousing		1,069		1,101
Information		2,309		2,390
Admin Support / Waste Mgmt		235		362
Total	$	235,845	$	244,241

The allowance for loan losses totaled $8.9 million at March 31, 2014, $8.7 million at December 31, 2013, and $10.6 million at March 31, 2013, respectively. The ratio of the allowance for loan losses to total loans was 1.63% at March 31, 2014, 1.57% at December 31, 2013, and 1.95% at March 31, 2013.

The following table indicates the type and level of non-accrual loans at the periods indicated below:

	March 31, 2014		December 31, 2013		March 31, 2013
	(Dollars in Thousands)
One-to-four family mortgages	$	1,056		945		1,883
Home equity line of credit		49		1		66
Junior lien		1		2		3
Multi-family		—		—		—
Construction		—		175		177
Land		1,217		1,218		2,754
Non-residential real estate		6,585		6,546		951
Farmland		669		703		545
Consumer loans		2		13		65
Commercial loans		453		463		592
Total non-accrual loans	$	10,032		10,066		7,036

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2014:

	Balance 12/31/2013		Charge off  2014			Recovery 2014		Specific Provision 2014			General Provision 2014			Ending Balance 3/31/2014
	(Dollars in Thousands)
One-to-four family mortgages	$	2,048		(35	)		8		(10	)		125			2,136
Home equity line of credit		218		—			1		—			—			219
Junior liens		39		—			5		4			(22	)		26
Multi-family		466		—			—		—			(134	)		332
Construction		88		(8	)		2		(6	)		4			80
Land		1,305		—			—		41			(133	)		1,213
Non-residential real estate		2,719		—			—		(80	)		250			2,889
Farmland		510		—			—		—			237			747
Consumer loans		541		(103	)		31		(137	)		343			675
Commercial loans		748		(50	)		—		(50	)		(52	)		596
Total	$	8,682		(196	)		47		(238	)		618			8,913

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2013:

	Balance 12/31/2012		Charge off 2013			Recovery 2013		Specific Provision 2013			General Provision 2013			Ending Balance 12/31/2013
	(Dollars in Thousands)
One-to-four family mortgages	$	2,490		(852	)		329		(285	)		366			2,048
Home equity line of credit		374		(22	)		9		(88	)		(55	)		218
Junior liens		230		(119	)		71		5			(148	)		39
Multi-family		524		(38	)		164		(20	)		(164	)		466
Construction		256		—			—		(168	)		—			88
Land		2,184		(1,432	)		9		(718	)		1,262			1,305
Non-residential real estate		2,921		(1,041	)		14		757			68			2,719
Farmland		712		—			—		(202	)		—			510
Consumer loans		338		(649	)		246		228			378			541
Commercial loans		619		(291	)		32		437			(49	)		748
Total	$	10,648		(4,444	)		874		(54	)		1,658			8,682

The table below presents past due and non-accrual balances at March 31, 2014, by loan classification allocated between performing and non-performing:

March 31, 2014	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
	(Dollars in Thousands)
One-to-four family mortgages	$	150,107		610		1,056		904		1,280		—		153,957
Home equity line of credit		33,256		148		49		—		494		—		33,947
Junior liens		2,764		—		1		42		22		—		2,829
Multi-family		23,871		—		—		4,899		—		—		28,770
Construction		11,278		—		—		—		—		—		11,278
Land		15,982		76		1,217		3,464		13,415		—		34,154
Non-residential real estate		141,228		47		6,585		488		5,735		—		154,083
Farmland		41,605		—		669		345		4,989		—		47,608
Consumer loans		14,576		28		2		—		654		—		15,260
Commercial loans		58,633		189		453		1,399		2,424		—		63,098
Total	$	493,300		1,098		10,032		11,541		29,013		—		544,984

The table below presents past due and non-accrual balances at December 31, 2013, by loan classification allocated between performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
December 31, 2013	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
	(Dollars in Thousands)
One-to-four family mortgages	$	148,759		592		945		814		4,142		—		155,252
Home equity line of credit		33,369		93		1		—		640		—		34,103
Junior liens		3,126		—		2		43		77		—		3,248
Multi-family		29,736		—		—		—		—		—		29,736
Construction		10,443		—		175		—		—		—		10,618
Land		19,899		—		1,218		52		13,512		—		34,681
Non-residential real estate		142,701		343		6,546		515		7,587		—		157,692
Farmland		46,042		—		703		480		4,643		—		51,868
Consumer loans		10,493		234		13		—		427		—		11,167
Commercial loans		61,379		123		463		526		1,550		—		64,041
Total	$	505,947		1,385		10,066		2,430		32,578		—		552,406

All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mentioned, substandard and doubtful are paying as agreed. However, the customer’s financial statements may indicate weaknesses in their current cash flow, the customer’s industry may be in decline due to current economic conditions, collateral values used to secure the loan may be declining, or the Company may be concerned about the customer’s future business prospects.

The Company does not originate loans it considers sub-prime and is not aware of any exposure to the additional credit concerns associated with sub-prime lending in either the Company’s loan or investment portfolios. The Company does have a significant amount of construction and land development loans. Management reports to the Company’s Board of Directors on the status of the Company’s specific construction and development loans as well as the market trends in those markets in which the Company actively participates.

The Company’s annualized net charge off ratios for three month periods ended March 31, 2014, March 31, 2013, and the year ended December 31, 2013, was 0.11%, 0.33% and 0.66%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2014, March 31, 2013, and December 31, 2013, were 88.85%, 150.35%, and 86.25%, respectively.

The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the market value of the underlying collateral, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred.

The Company conducts annual reviews on all loan relationships above one million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information.

As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

Satisfactory loans of average strength having some deficiency or vulnerability to changing economic or industry conditions. These customers should have reasonable amount of capital and operating ratios. Secured loans may lack in margin or liquidity. Loans to individuals, perhaps supported in dollars of net worth, but with supporting assets may be difficult to liquidate.

Watch loans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Bank does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends;

(b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency. If considered marginal, a loan would be a “watch” until financial data demonstrated improved performance or further deterioration to a “substandard” grade usually within a 12-month period. In the table on page 23, Watch loans are included with satisfactory loans and classified as Pass.

Special Mention are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan. These credit weaknesses, if not checked or corrected, will weaken the loan or inadequately protect the Bank’s credit position at some future date.

A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the credit. Examples of substandard loans include those to borrowers with insufficient or negative cash flow, negative net worth coupled with inadequate guarantor support, inadequate working capital, and/or significantly past-due loans and overdrafts.

A loan classified Doubtful has all the weaknesses inherent in a substandard credit except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors charge-off is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. The doubtful classification is applied to that portion of the credit in which the full collection of principal and interest is questionable.

A loan is considered to be impaired when management determines that it is possible 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 less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. At March 31, 2014, December 31, 2013, and March 31, 2013, the Company’s impaired loans totaled $39.0 million, $42.6 million and $43.7 million, respectively. At March 31, 2014, December 31, 2013, and March 31, 2013, the Company’s specific reserve for impaired loans totaled $2.0 million, $1.9 million and $2.7 million, respectively.

A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2014, were as follows:

March 31, 2014	Pass		Special Mention		Impaired Loans				Total		Specific Allowance for Impairment		Allowance for Performing Loans
					Substandard		Doubtful
	(Dollars in Thousands)
One-to-four family mortgages	$	150,717		904		2,336		—		153,957		580		1,556
Home equity line of credit		33,404		—		543		—		33,947		—		219
Junior liens		2,764		42		23		—		2,829		—		26
Multi-family		23,871		4,899		—		—		28,770		—		332
Construction		11,278		—		—		—		11,278		—		80
Land		16,058		3,464		14,632		—		34,154		730		483
Non-residential real estate		141,275		488		12,320		—		154,083		546		2,343
Farmland		41,605		345		5,658		—		47,608		—		747
Consumer loans		14,604		—		656		—		15,260		160		515
Commercial loans		58,822		1,399		2,877		—		63,098		—		596
Total	$	494,398		11,541		39,045		—		544,984		2,016		6,897

A summary of the Company’s impaired loans and their respective reserve at December 31, 2013, were as follows:

December 31, 2013	Pass		Special Mention		Impaired Loans				Total		Allowance for Impairment		Allowance for Performing Loans
					Substandard		Doubtful
	(Dollars in Thousands)
One-to-four family mortgages	$	149,351		814		5,087		—		155,252		597		1,451
Home equity line of credit		33,462		—		641		—		34,103		—		218
Junior liens		3,126		43		79		—		3,248		—		39
Multi-family		29,736		—		—		—		29,736		—		466
Construction		10,443		—		175		—		10,618		—		88
Land		19,899		52		14,730		—		34,681		771		534
Non-residential real estate		143,044		515		14,133		—		157,692		465		2,254
Farmland		46,042		480		5,346		—		51,868		—		510
Consumer loans		10,727		—		440		—		11,167		96		445
Commercial loans		61,502		526		2,013		—		64,041		—		748
Total	$	507,332		2,430		42,644		—		552,406		1,929		6,753

Impaired loans by classification type and the related valuation allowance amounts at March 31, 2014, were as follows:

	At March 31, 2014						For the three month period ended March 31, 2014
Impaired loans with no recorded reserve	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
One-to-four family mortgages	$	481		481		—		1,849		2
Home equity line of credit		543		543		—		592		3
Junior liens		23		23		—		51		1
Multi-family		—		—		—		—		—
Construction		—		—		—		88		—
Land		11,106		11,106		—		10,994		201
Farmland		5,658		5,658				8,217		102
Non-residential real estate		8,987		8,987		—		7,167		157
Consumer loans		14		14		—		35		—
Commercial loans		2,877		2,877		—		2,445		106
Total		29,689		29,689		—		31,438		572
Impaired loans with recorded reserve
One-to-four family mortgages		1,855		1,855		580		1,863		6
Home equity line of credit		—		—		—		—		—
Junior liens		—		—		—		—		—
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Land		3,526		5,039		730		3,687		23
Farmland		—		—		—		—		—
Non-residential real estate		3,333		4,118		546		3,346		76
Consumer loans		642		642		160		513		—
Commercial loans		—		—		—		—		—
Total		9,356		11,654		2,016		9,409		105
Total impaired loans	$	39,045		41,343		2,016		40,847		677

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2013, were as follows:

	At December 31, 2013						For the year ended December 31, 2013
Impaired loans with no recorded reserve	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
One-to-four family mortgages	$	3,216		3,216		—		2,361		8
Home equity line of credit		641		641		—		564		3
Junior liens		79		79		—		239		1
Multi-family		—		—		—		990		—
Construction		175		175		—		1,072		5
Land		10,882		12,315		—		10,668		186
Farmland		5,346		5,346		—		6,955		149
Non-residential real estate		10,775		10,775		—		6,196		263
Consumer loans		56		56		—		48		—
Commercial loans		2,013		2,013		—		2,391		95
Total		33,183		34,616		—		31,484		710
Impaired loans with recorded reserve
One-to-four family mortgages		1,871		1,871		597		2,501		9
Home equity line of credit		—		—		—		279		—
Junior liens		—		—		—		113		—
Multi-family		—		—		—		—		—
Construction		—		—		—		1,385		—
Land		3,848		3,848		771		2,741		29
Farmland		—		—		—		1,601		—
Non-residential real estate		3,358		4,222		465		2,243		111
Consumer loans		384		384		96		401		—
Commercial loans		—		—		—		346		—
Total	$	9,461		10,325		1,929		11,610		149
Total impaired loans	$	42,644		44,941		1,929		43,094		859

On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:

• The restructuring constitutes a concession

• The debtor is experiencing financial difficulties

ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:

1. 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 Bank may have granted a concession. In that circumstance, the Bank 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.

2. 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.

3. A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Bank must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant.

At March 31, 2014, and December 31, 2013, the Company has no loans classified as Troubled Debt Restructurings (TDR’s) that are reported as performing at March 31, 2014, and December 31, 2013, respectively. For the three month period ended March 31, 2014, no loans were classified as TDR and no loans were added or removed from TDR status during the three month period ended March 31, 2014.