Note 3 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 3:     LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at December 31, 2015 and 2014 include:

	December 31,
	2015			2014
Real estate - residential mortgage:
One to four family units	$	98,257,417		$	97,900,814
Multi-family		41,603,670			33,785,959
Real estate - construction		45,462,895			36,784,584
Real estate - commercial		208,824,573			215,605,054
Commercial loans		81,006,897			92,114,216
Consumer and other loans		21,991,881			17,246,437
Total loans		497,147,333			493,437,064
Less:
Allowance for loan losses		(5,811,940	)		(6,588,597	)
Deferred loan fees/costs, net		(333,486	)		(261,831	)
Net loans	$	491,001,907		$	486,586,636

Classes of loans by aging at December 31, 2015 and 2014 were as follows:

As of December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	-	$	168	$	105	$	273	$	97,984	$	98,257	$	-
Multi-family		-		-		-		-		41,604		41,604		-
Real estate - construction		-		-		-		-		45,463		45,463		-
Real estate - commercial		-		-		1,079		1,079		207,745		208,824		-
Commercial loans		88		-		1,239		1,327		79,680		81,007		-
Consumer and other loans		2		8		-		10		21,982		21,992		-
Total	$	90	$	176	$	2,423	$	2,689	$	494,458	$	497,147	$	-

As of December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	113	$	428	$	279	$	820	$	97,081	$	97,901	$	-
Multi-family		-		-		-		-		33,786		33,786		-
Real estate - construction		-		-		-		-		36,785		36,785		-
Real estate - commercial		-		-		-		-		215,605		215,605		-
Commercial loans		-		-		227		227		91,887		92,114		-
Consumer and other loans		23		35		-		58		17,188		17,246		-
Total	$	136	$	463	$	506	$	1,105	$	492,332	$	493,437	$	-

Nonaccruing loans are summarized as follows:

	December 31,
	2015		2014
Real estate - residential mortgage:
One to four family units	$	2,272,535	$	911,240
Multi-family		-		-
Real estate - construction		8,079,807		2,892,772
Real estate - commercial		1,240,909		459,823
Commercial loans		2,149,333		1,026,772
Consumer and other loans		12,891		-
Total	$	13,755,475	$	5,290,607

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the years ended December 31, 2015, 2014 and 2013:

As of December 31, 2015
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,330		$	1,992		$	900		$	127	$	1,954		$	185		$	101	$	6,589
Provision charged to expense		1,139			(466	)		-			50		(576	)		117			336	$	600
Losses charged off		(1,233	)		-			(99	)		-		-			(119	)		-	$	(1,451	)
Recoveries		10			-			20			-		4			40			-	$	74
Balance, end of year	$	1,246		$	1,526		$	821		$	177	$	1,382		$	223		$	437	$	5,812
Ending balance: individually evaluated for impairment	$	540		$	-		$	-		$	-	$	312		$	13		$	-	$	865
Ending balance: collectively evaluated for impairment	$	706		$	1,526		$	821		$	177	$	1,070		$	210		$	437	$	4,947
Loans:
Ending balance: individually evaluated for impairment	$	8,080		$	1,241		$	2,272		$	-	$	2,149		$	988		$	-	$	14,730
Ending balance: collectively evaluated for impairment	$	37,383		$	207,583		$	95,985		$	41,604	$	78,858		$	21,004		$	-	$	482,417

As of December 31, 2014
	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	2,387		$	2,059		$	997		$	209		$	1,519		$	272		$	359		$	7,802
Provision charged to expense		(651	)		(157	)		21			(82	)		2,388			14			(258	)	$	1,275
Losses charged off		(411	)		(9	)		(127	)		-			(2,018	)		(150	)		-		$	(2,715	)
Recoveries		5			99			9			-			65			49			-		$	227
Balance, end of year	$	1,330		$	1,992		$	900		$	127		$	1,954		$	185		$	101		$	6,589
Ending balance: individually evaluated for impairment	$	376		$	158		$	36		$	-		$	203		$	12		$	-		$	785
Ending balance: collectively evaluated for impairment	$	954		$	1,834		$	864		$	127		$	1,751		$	173		$	101		$	5,804
Loans:
Ending balance: individually evaluated for impairment	$	2,893		$	460		$	847		$	-		$	1,027		$	801		$	-		$	6,028
Ending balance: collectively evaluated for impairment	$	33,892		$	215,145		$	97,054		$	33,786		$	91,087		$	16,445		$	-		$	487,409

As of December 31, 2013
	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	2,525		$	2,517		$	1,316		$	284		$	1,689		$	255		$	154	$	8,740
Provision charged to expense		691			(181	)		(203	)		(75	)		988			125			205	$	1,550
Losses charged off		(879	)		(277	)		(139	)		-			(1,268	)		(164	)		-	$	(2,727	)
Recoveries		50			-			23			-			110			56			-	$	239
Balance, end of year	$	2,387		$	2,059		$	997		$	209		$	1,519		$	272		$	359	$	7,802
Ending balance: individually evaluated for impairment	$	890		$	-		$	8		$	-		$	601		$	102		$	-	$	1,601
Ending balance: collectively evaluated for impairment	$	1,497		$	2,059		$	989		$	209		$	918		$	170		$	359	$	6,201
Loans:
Ending balance: individually evaluated for impairment	$	4,530		$	3,663		$	886		$	-		$	6,776		$	316		$	-	$	16,171
Ending balance: collectively evaluated for impairment	$	38,736		$	175,417		$	92,912		$	46,188		$	85,946		$	16,987		$	-	$	456,186

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following summarizes impaired loans as of and for the years ended December 31, 2015 and 2014:

As of December 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	2,272	$	2,272	$	-	$	1,270	$	3
Multi-family		-		-		-		-		-
Real estate - construction		5,730		5,730		-		1,636		-
Real estate - commercial		1,241		1,241		-		234		-
Commercial loans		1,538		1,538		-		665		-
Consumer and other loans		904		904		-		88		1
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	228	$	-
Multi-family		-		-		-		-		-
Real estate - construction		2,350		4,838		540		3,255		-
Real estate - commercial		-		-		-		-		-
Commercial loans		611		914		312		616		-
Consumer and other loans		84		84		13		118		-
Total
Real estate - residential mortgage:
One to four family units	$	2,272	$	2,272	$	-	$	1,498	$	3
Multi-family		-		-		-		-		-
Real estate - construction		8,080		10,568		540		4,891		-
Real estate - commercial		1,241		1,241		-		234		-
Commercial loans		2,149		2,452		312		1,281		-
Consumer and other loans		988		988		13		206		1
Total	$	14,730	$	17,521	$	865	$	8,110	$	4

As of December 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	632	$	632	$	-	$	692	$	2
Multi-family		-		-		-		35		-
Real estate - construction		74		74		-		84		-
Real estate - commercial		-		-		-		204		-
Commercial loans		341		341		-		1,924		198
Consumer and other loans		-		-		-		-		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	279	$	279	$	36	$	322	$	-
Multi-family		-		-		-		-		-
Real estate - construction		2,819		4,074		376		3,554		-
Real estate - commercial		460		460		158		441		-
Commercial loans		685		988		203		1,175		-
Consumer and other loans		91		91		12		234		-
Total
Real estate - residential mortgage:
One to four family units	$	911	$	911	$	36	$	1,014	$	2
Multi-family		-		-		-		35		-
Real estate - construction		2,893		4,148		376		3,638		-
Real estate - commercial		460		460		158		645		-
Commercial loans		1,026		1,329		203		3,099		198
Consumer and other loans		91		91		12		234		-
Total	$	5,381	$	6,939	$	785	$	8,665	$	200

Interest of approximately $46,000 was recognized on average impaired loans of $17,244,000 for the year ended December 31, 2013.

At December 31, 2015, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (TDR). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Bank include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

The following summarizes information regarding new troubled debt restructurings by class:

	2015
	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		7	$	1,345,358	$	1,345,358
Multi-family		-		-		-
Real estate - construction		5		6,889,044		5,655,969
Real estate - commercial		1		161,491		161,491
Commercial loans		3		750,849		771,557
Consumer and other loans		-		-		-
Total		16	$	9,146,742	$	7,934,375

	2014
	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		1	$	287,500	$	287,500
Multi-family		-		-		-
Real estate - construction		-		-		-
Real estate - commercial		-		-		-
Commercial loans		2		831,026		831,026
Consumer and other loans		-		-		-
Total		3	$	1,118,526	$	1,118,526

The troubled debt restructurings described above increased the allowance for loan losses by $0 and $239,724 and resulted in charge offs of $1,233,075 and $303,345 during the years ended December 31, 2015 and 2014, respectively.

The following presents the troubled debt restructurings by type of modification:

	2015
	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	1,345,358	$	1,345,358
Multi-family		-		-		-		-
Real estate - construction		-		-		5,655,969		5,655,969
Real estate - commercial		-		-		161,491		161,491
Commercial loans		-		310,500		461,057		771,557
Consumer and other loans		-		-		-		-
Total	$	-	$	310,500	$	7,623,875	$	7,934,375

	2014
	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	287,500	$	287,500
Multi-family		-		-		-		-
Real estate - construction		-		-		-		-
Real estate - commercial		-		-		-		-
Commercial loans		-		-		831,026		831,026
Consumer and other loans		-		-		-		-
Total	$	-	$	-	$	1,118,526	$	1,118,526

As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:

Pass-This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention-This rating represents loans that are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard-This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Doubtful-This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Real estate-Residential 1-4 family: The residential 1-4 family real estate loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income.  

Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Real estate-Construction: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

The following table provides information about the credit quality of the loan portfolio using the Bank’s internal rating system as of December 31, 2015 and 2014:

As of December 31, 2015
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	37,383	$	198,230	$	91,267	$	41,604	$	73,407	$	21,775	$	463,666
Special Mention		-		3,657		3,319		-		2,267		-		9,243
Substandard		8,080		6,937		3,671		-		4,730		217		23,635
Doubtful		-		-		-		-		603		-		603
Total	$	45,463	$	208,824	$	98,257	$	41,604	$	81,007	$	21,992	$	497,147

As of December 31, 2014
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	27,370	$	207,311	$	94,129	$	33,786	$	78,197	$	17,015	$	457,808
Special Mention		6,522		5,076		2,501		-		10,273		-		24,372
Substandard		2,893		2,758		1,271		-		3,644		231		10,797
Doubtful		-		460		-		-		-		-		460
Total	$	36,785	$	215,605	$	97,901	$	33,786	$	92,114	$	17,246	$	493,437

The weighted average interest rate on loans as of December 31, 2015 and 2014 was 4.87% and 5.09%, respectively.

The Bank serviced mortgage loans for others amounting to $64,220 and $94,214 as of December 31, 2015 and 2014, respectively. The Bank serviced commercial loans for others amounting to $7,629,058 and $4,672,175 as of December 31, 2015 and 2014, respectively.