Loans Receivable

6 Months Ended

Jun. 30, 2012

Loans Receivable [Abstract]

Loans Receivable

3. Loans Receivable

The Company’s loans receivable as of the respective dates are summarized as follows:

(In thousands)	June 30, 2012			December 31, 2011
Mortgage loans:
Residential real estate
Single family	$	326,487		$	312,723
Multi family		33,426			32,370
Construction		44,795			45,363
Total residential real estate		404,708			390,456
Commercial real estate
Commercial		79,779			83,447
Construction		19,095			17,307
Total commercial real estate		98,874			100,754
Subtotal mortgage loans		503,582			491,210
Other loans:
Consumer loans
Home equity loans		72,536			72,493
Dealer auto and RV loans		47,841			47,039
Other loans		8,305			9,255
Total consumer loans		128,682			128,787
Commercial business		52,375			50,337
Subtotal other loans		181,057			179,124
Total loans receivable		684,639			670,334
Less:
Allowance for loan losses		6,741			6,537
Deferred loan fees and net discounts		(1,974	)		(1,852	)
Loans in process		15,396			16,728
Subtotal		20,163			21,413
Net loans receivable	$	664,476		$	648,921

At June 30, 2012 and December 31, 2011, the Company conducted its business through 25 offices in Allegheny, Beaver, Butler and Lawrence counties in Pennsylvania which also serves as its primary lending area. Management does not believe it has significant concentrations of credit risk to any one group of borrowers given its underwriting and collateral requirements.

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: commercial business loans, commercial real estate loans, residential real estate loans and consumer loans. The Company sub-segments residential real estate loans into the following three classes: single family, construction and multi-family. Commercial real estate is sub-segmented into commercial and construction classes. The Company also sub-segments the consumer loan portfolio into the following three classes: home equity, dealer automobile and recreational vehicle (RV) and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three year period for all portfolio segments. Certain qualitative factors are then added to the historical loss percentages to get the adjusted factor to be applied to non classified loans. The following qualitative factors are analyzed for each portfolio segment:

• Levels of and trends in delinquencies and nonaccruals

• Changes in lending policies and procedures

• Volatility of losses within each risk category

• Loans and Lending staff acquired through acquisition

• Economic trends

• Concentrations of credit

• Trends in volume and terms

• Experience depth and ability of management

These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the portfolio. During the first three months of 2012, the qualitative factors for levels of and trends in delinquencies & nonaccruals were increased for residential mortgages, commercial loans and consumer loans. Trends in volume and terms were also increased for residential mortgages.

In terms of the Company’s loan portfolio, the consumer, commercial business and commercial real estate loans are deemed to have more risk than the residential real estate loans in the portfolio. The commercial loans not secured by real estate are highly dependent on the borrowers’ financial condition and are more dependent on economic conditions. The commercial loans secured by real estate are also dependent on economic conditions but generally have stronger forms of collateral. Within the consumer loan portfolio, the dealer auto and RV loans have historically carried more risk than the other segments of the consumer portfolio.

Loans by Segment

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the statement of financial condition date. The Company considers the allowance for loan losses of $6.7 million adequate to cover loan losses inherent in the loan portfolio, at June 30, 2012. The following tables present by portfolio segment, the changes in the allowance for loan losses for the six month periods ended June 30, 2012 and 2011.

As of June 30, 2012
(Dollar amounts in thousands)	Commercial		Commercial Real Estate			Consumer		Residential		Unallocated			Total
Allowance for loan losses:
Beginning balance	$	384	$	2,442		$	1,045	$	2,115	$	551		$	6,537
Charge-offs		—		—			239		124		—			363
Recoveries		—		—			50		17		—			67
Provision		—		—			—		500		—			500
Reallocations		50		(143	)		148		11		(66	)		—
Ending Balance	$	434	$	2,299		$	1,004	$	2,519	$	485		$	6,741

As of June 30, 2011
(Dollar amounts in thousands)	Commercial			Commercial Real Estate		Consumer			Residential			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	784		$	1,831	$	1,125		$	2,573		$	234	$	6,547
Charge-offs		178			—		267			58			—		503
Recoveries		24			—		84			1			—		109
Provision		—			25		225			175			75		500
Reallocations		(263	)		171		(59	)		(55	)		206		—
Ending Balance	$	367		$	2,027	$	1,108		$	2,636		$	515	$	6,653

The following tables present by portfolio segment, the recorded investment in loans at June 30, 2012 and December 31, 2011.

As of June 30, 2012
(Dollar amounts in thousands)	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Ending balance: individually evaluated for impairment	$	3	$	1,386	$	48	$	—	$	—	$	1,437
Ending balance: collectively evaluated for impairment	$	431	$	913	$	956	$	2,519	$	485	$	5,304
Ending balance: loans acquired with deteriorated credit quality	$	—	$	—	$	—	$	—	$	—	$	—
Loans Receivable:
Ending Balance	$	52,375	$	98,874	$	128,682	$	404,708	$	—	$	684,639
Ending balance: individually evaluated for impairment	$	38	$	13,857	$	152	$	2,508	$	—	$	16,555
Ending balance: collectively evaluated for impairment	$	52,337	$	85,017	$	128,530	$	402,200	$	—	$	668,084
Ending balance: loans acquired with deteriorated credit quality	$	—	$	—	$	—	$	—	$	—	$	—

As of December 11, 2011
(Dollar amounts in thousands)	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Ending balance: individually evaluated for impairment	$	2	$	850	$	50	$	271	$	—	$	1,173
Ending balance: collectively evaluated for impairment	$	336	$	1,161	$	1,103	$	2,405	$	418	$	5,423
Ending balance: loans acquired with deteriorated credit quality	$	—	$	—	$	—	$	—	$	—	$	—
Loans Receivable:
Ending Balance	$	50,337	$	100,754	$	128,787	$	390,456	$	—	$	670,334
Ending balance: individually evaluated for impairment	$	63	$	14,023	$	153	$	1,364	$	—	$	15,603
Ending balance: collectively evaluated for impairment	$	50,274	$	86,731	$	128,634	$	389,092	$	—	$	654,731
Ending balance: loans acquired with deteriorated credit quality	$	—	$	—	$	—	$	—	$	—	$	—

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of June 30, 2012 and December 31, 2011. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

As of June 30, 2012
(Dollar amounts in thousands)
	Residential Real Estate Multi - family		Residential Real Estate Construction		Commercial Real Estate Commercial		Commercial Real Estate Construction		Commercial
Pass	$	33,426	$	38,694	$	63,809	$	19,095	$	52,290
Special Mention		—		4,954		2,079		—		49
Substandard		—		1,147		13,891		—		36
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
Ending Balance	$	33,426	$	44,795	$	79,779	$	19,095	$	52,375

As of December 31, 2011
(Dollar amounts in thousands)
	Residential Real Estate Multi - family		Residential Real Estate Construction		Commercial Real Estate Commercial		Commercial Real Estate Construction		Commercial
Pass	$	32,370	$	38,219	$	67,119	$	17,307	$	50,232
Special Mention		—		7,144		2,319		—		57
Substandard		—		—		14,009		—		39
Doubtful		—		—		—		—		—
Loss		—		—		—		—		9
Ending Balance	$	32,370	$	45,363	$	83,447	$	17,307	$	50,337

The following tables present performing and nonperforming single family residential and consumer loans based on payment activity as of June 30, 2012 and December 31, 2011. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days delinquent.

As of June 30, 2012
(Dollar amounts in thousands)
	Residential Real Estate Single Family		Consumer Home Equity		Dealer Auto and RV		Other Consumer
Performing	$	322,319	$	72,123	$	47,741	$	8,187
Nonperforming		4,168		413		100		118
Total	$	326,487	$	72,536	$	47,841	$	8,305

As of December 31, 2011
(Dollar amounts in thousands)
	Residential Real Estate Single Family		Consumer Home Equity		Dealer Auto and RV		Other Consumer
Performing	$	310,263	$	72,091	$	46,907	$	9,162
Nonperforming		2,460		402		132		93
Total	$	312,723	$	72,493	$	47,039	$	9,255

Nonperforming loans also include certain loans that have been modified and classified as troubled debt restructuring (TDR) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

Non-performing loans, which include non-accrual loans and TDRs, were $16.6 million and $13.4 million at June 30, 2012 and December 31, 2011. The TDRs amounted to $8.8 million and $7.8 million at June 30, 2012 and December 31, 2011, respectively. The Company is not committed to lend additional funds to debtors whose loans are on non-accrual status.

Age Analysis of Past Due Loans Receivable by Class

Following tables are an aging analysis of the investment of past due loans receivable as of June 30, 2012 and December 31, 2011.

(Dollar amounts in thousands)													Recorded
As of June 30, 2012													Investment >
	30-59 Days		60-89 Days		90 Days		Total Past				Total Loans		90 Days and
	Past Due		Past Due		Or Greater		Due		Current		Receivable		Accruing
Residential real estate
Single family	$	414	$	509	$	4,168	$	5,091	$	321,396	$	326,487	$	—
Construction		—		—		—		—		44,795		44,795		—
Multi-family		—		—		—		—		33,426		33,426		—
Commercial Real Estate
Commercial		223		772		3,104		4,099		75,680		79,779		—
Construction		—		—		—		—		19,095		19,095		—
Consumer
Consumer - home equity		124		48		260		432		72,104		72,536		—
Consumer - dealer auto and RV		469		106		100		675		47,166		47,841		—
Consumer - other		25		15		118		158		8,147		8,305		—
Commercial		60		4		37		101		52,274		52,375		—
Total	$	1,315	$	1,454	$	7,787	$	10,556	$	674,083	$	684,639	$	—

(Dollar amounts in thousands)													Recorded
As of December 31, 2011													Investment >
	30-59 Days		60-89 Days		90 Days		Total Past				Total Loans		90 Days and
	Past Due		Past Due		Or Greater		Due		Current		Receivable		Accruing
Residential real estate
Single family	$	464	$	2,933	$	2,460	$	5,857	$	306,866	$	312,723	$	—
Construction		—		—		—		—		45,363		45,363		—
Multi-family		—		—		—		—		32,370		32,370		—
Commercial Real Estate
Commercial		48		1,507		2,629		4,184		79,263		83,447		—
Construction		—		—		—		—		17,307		17,307		—
Consumer
Consumer - home equity		143		9		249		401		72,092		72,493		—
Consumer - dealer auto and RV		698		101		132		931		46,108		47,039		—
Consumer - other		98		23		93		214		9,041		9,255		—
Commercial		59		—		54		113		50,224		50,337		—
Total	$	1,510	$	4,573	$	5,617	$	11,700	$	658,634	$	670,334	$	—

Impaired Loans

Management considers commercial loans, commercial real estate loans and development loans which are 90 days or more past due to be impaired. Larger commercial loans, commercial real estate loans and development loans which are 60 days or more past due, including any troubled debt restructuring, are selected for impairment testing in accordance with GAAP. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the fair value of the impaired loan is less than the recorded investment in the loan, impairment is recognized through a provision for loan loss estimate or a charge-off to the allowance for loan losses. The Company collectively reviews all residential real estate and consumer loans for impairment.

The following tables summarize impaired loans:

(Dollar amounts in thousands)
	June 30, 2012						December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial Real Estate:
Commercial Real Estate	$	5,509	$	5,616	$	—	$	5,568	$	5,675	$	—
Commercial business loans		—		—		—		39		39		—
Residential loans		1,362		1,362		—		1,364		1,364		—
Residential Construction loans		1,147		1,147		—		—		—		—
With an allowance recorded:
Commercial Real Estate:
Commercial Real Estate	$	8,348		8,348		1,385	$	8,454		8,454		1,489
Consumer Loans:
Home Equity		152		152		48		153		153		50
Commercial business loans		38		38		3		25		25		10
Total:
Commercial Real Estate	$	13,857	$	13,964	$	1,385	$	14,023	$	14,129	$	1,489
Consumer		152		152		48		153		153		50
Residential		1,362		1,362		—		1,364		1,364		—
Residential Construction loans		1,147		1,147		—		—		—		—
Commercial		38		38		3		63		63		10

(Dollar amounts in thousands)
	Six months ended				Six months ended
	June 30, 2012				June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate:
Commercial Real Estate	$	5,503	$	112	$	1,149	$	10
Commercial business loans		—		—		93		6
Residential loans		1,363		5		—		—
Residential construction loans		164		22		—		—
With an allowance recorded:
Residential Real Estate
Construction		—		—		2,046		—
Commercial Real Estate:
Commercial Real Estate		8,398		214		7,339		276
Consumer Loans:
Home Equity		153		5		155		4
Commercial business loans		43		—		205		2
Total:
Commercial Real Estate	$	13,901	$	326	$	8,488	$	286
Consumer		153		5		155		4
Residential		1,363		5		2,046		—
Residential construction loans		164		22
Commercial		43		—		298		8

Nonaccrual Loans

Loans are considered nonaccrual upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

On the following table are the loans receivable on nonaccrual status as of June 30, 2012 and December 31, 2011. The balances are presented by class of loans:

(Dollar amounts in thousands)	June 30, 2012		December 31, 2011
Commercial	$	37	$	54
Commercial Real Estate		11,714		10,237
Consumer
Consumer - Home Equity		413		402
Consumer - Dealer auto and RV		100		132
Consumer - other		118		93
Residential		4,168		2,460
Total	$	16,550	$	13,378

Modifications

The Company’s loan portfolio also includes TDR’s, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

The following table includes the recorded investment and number of modifications for modified loans, as of June 30, 2012 and December 31, 2011. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

(Dollar amounts in thousands)
	As of June 30, 2012						As of December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential construction loans		3	$	947	$	947		—	$	—	$	—
Commercial Real Estate		1		100		100		3		7,368		7,528
Consumer		—		—		—		—		—		—
Troubled Debt Restructurings
That Subsequently Defaulted		—		—		—		—		—		—
Troubled Debt Restructurings
Commercial Real Estate		—		—		—		—		—		—