Loans Receivable

3 Months Ended

Mar. 31, 2013

Loans Receivable [Abstract]

Loans Receivable

3. Loans Receivable

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

	March 31,			December 31,
(In thousands)	2013			2012
Mortgage loans:
Residential real estate
Single family	$	331,097		$	326,005
Multi family		34,836			33,472
Construction		45,740			46,418
Total residential real estate		411,673			405,895
Commercial real estate
Commercial		83,843			81,077
Construction		14,664			15,878
Total commercial real estate		98,507			96,955
Subtotal mortgage loans		510,180			502,850
Other loans:
Consumer loans
Home equity loans		80,409			80,418
Dealer auto and RV loans		46,861			46,571
Other loans		7,420			7,896
Total consumer loans		134,690			134,885
Commercial business		58,141			54,445
Subtotal other loans		192,831			189,330
Total loans receivable		703,011			692,180
Less:
Allowance for loan losses		6,721			6,709
Deferred loan fees and net discounts		(1,923	)		(1,862	)
Loans in process		16,940			15,247
Subtotal		21,738			20,094
Net loans receivable	$	681,273		$	672,086

At March 31, 2013 and December 31, 2012, the Company conducted its business through 23 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 2013, the qualitative factors for trends in volume and terms were also increased for other consumer and commercial loans.

In terms of the Company’s loan portfolio, the commercial and industrial loans and commercial real estate loans are deemed to have more risk than the consumer real estate loans and other consumer loans in the portfolio. The commercial loans not secured by real estate are highly dependent on 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. More recently, commercial real estate has been negatively impacted by devaluation so these commercial loans carry a higher qualitative factor for changes in the value of collateral. The commercial loans and commercial real estate loans have historically been responsible for the majority of the Company’s delinquencies, non-accrual loans, and charge-offs so both of these categories carry higher qualitative factors than consumer real estate loans and other consumer loans. The Company has historically experienced very low levels of consumer real estate and consumer loan charge-offs so these qualitative factors are set lower than the commercial real estate and commercial and industrial loans.

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 March 31, 2013. The following tables present by portfolio segment, the changes in the allowance for loan losses for the periods ended March 31, 2013 and 2012.

As of March 31, 2013

(Dollar amounts in thousands)

	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	550	$	2,075	$	1,031	$	2,541	$	512	$	6,709
Charge-offs		—		—		146		10		—		156
Recoveries		—		—		18		—		—		18
Provision		14		50		25		61		—		150
Reallocations		—		—		—		—		—		—
Ending Balance	$	564	$	2,125	$	928	$	2,592	$	512	$	6,721

As of March 31, 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		—		—			107			39		—			146
Recoveries		—		—			25			17		—			42
Provision		—		—			—			200		—			200
Reallocations		22		(103	)		(8	)		147		(58	)		—
Ending Balance	$	406	$	2,339		$	955		$	2,440	$	493		$	6,633

The following tables present by portfolio segment, the recorded investment in loans at March 31, 2013 and December 31, 2012.

As of March 31, 2013

(Dollar amounts in thousands)

	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	—	$	1,049	$	51	$	—	$	—	$	1,100
Ending balance: collectively evaluated for impairment	$	564	$	1,076	$	877	$	2,592	$	512	$	5,621
Loans Receivable:
Ending Balance	$	58,141	$	98,507	$	134,690	$	411,673	$	—	$	703,011
Ending balance: individually evaluated for impairment	$	—	$	13,055	$	386	$	2,237	$	—	$	15,678
Ending balance: collectively evaluated for impairment	$	58,141	$	85,452	$	134,304	$	409,436	$	—	$	687,333

As of December 31, 2012

(Dollar amounts in thousands)

	Commercial		Commercial Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	—	$	1,110	$	54	$	—	$	—	$	1,164
Ending balance: collectively evaluated for impairment	$	550	$	965	$	977	$	2,541	$	512	$	5,545
Loans Receivable:
Ending Balance	$	54,445	$	96,955	$	134,885	$	405,895	$	—	$	692,180
Ending balance: individually evaluated for impairment	$	—	$	13,414	$	327	$	2,163	$	—	$	15,904
Ending balance: collectively evaluated for impairment	$	54,445	$	83,541	$	134,558	$	403,732	$	—	$	676,276

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of March 31, 2013 and December 31, 2012. 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 March 31, 2013

(Dollar amounts in thousands)

	Residential Real Estate Multi - family		Residential Real Estate Construction		Commercial Real Estate Commercial		Commercial Real Estate Construction		Commercial
Pass	$	34,836	$	40,403	$	68,511	$	14,664	$	57,535
Special Mention		—		4,459		1,649		—		573
Substandard		—		878		13,683		—		33
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
Ending Balance	$	34,836	$	45,740	$	83,843	$	14,664	$	58,141

As of December 31, 2012

(Dollar amounts in thousands)

	Residential		Residential		Commercial		Commercial
	Real Estate		Real Estate		Real Estate		Real Estate
	Multi - family		Construction		Commercial		Construction		Commercial
Pass	$	33,472	$	41,138	$	65,696	$	15,878	$	53,883
Special Mention		—		4,477		1,334		—		527
Substandard		—		803		14,047		—		35
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
Ending Balance	$	33,472	$	46,418	$	81,077	$	15,878	$	54,445

The following tables present performing and nonperforming single family residential and consumer loans based on payment activity as of March 31, 2013 and December 31, 2012. 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 March 31, 2013

(Dollar amounts in thousands)

	Residential Real Estate		Consumer		Dealer		Other
	Single Family		Home Equity		Auto and RV		Consumer
Performing	$	327,410	$	80,092	$	46,691	$	7,299
Nonperforming		3,687		317		170		121
Total	$	331,097	$	80,409	$	46,861	$	7,420

As of December 31, 2012

(Dollar amounts in thousands)

	Residential Real Estate		Consumer		Dealer		Other
	Single Family		Home Equity		Auto and RV		Consumer
Performing	$	322,662	$	80,124	$	46,450	$	7,787
Nonperforming		3,343		294		121		109
Total	$	326,005	$	80,418	$	46,571	$	7,896

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. Delinquent 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 $7.7 million and $7.4 million at March 31, 2013 and December 31, 2012, respectively. The TDRs included in non-performing loans amounted to $460,000 and $368,000 at both March 31, 2013 and December 31, 2012, respectively. The Company also had TDR’s that were in compliance with their modified terms of $8.3 million and $8.2 million at March 31, 2013 and December 31, 2012, 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 March 31, 2013 and December 31, 2012.

(Dollar amounts in thousands)

As of March 31, 2013

													Recorded
													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	$	361	$	386	$	3,687	$	4,434	$	326,663	$	331,097	$	—
Construction		—		—		—		—		34,836		34,836		—
Multi-family		—		—		—		—		45,740		45,740		—
Commercial Real Estate
Commercial		78		507		3,035		3,620		80,223		83,843		—
Construction		—		—		—		—		14,664		14,664		—
Consumer
Consumer - home equity		94		—		189		283		80,126		80,409		—
Consumer - dealer auto and RV		365		118		158		641		46,220		46,861		—
Consumer - other		17		33		121		171		7,249		7,420		—
Commercial		60		—		36		96		58,045		58,141		—
Total	$	975	$	1,044	$	7,226	$	9,245	$	693,766	$	703,011	$	—

(Dollar amounts in thousands)

As of December 31, 2012

													Recorded
													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	$	887	$	420	$	3,343	$	4,650	$	321,355	$	326,005	$	—
Construction		—		—		—		—		46,418		46,418		—
Multi-family		—		—		—		—		33,472		33,472		—
Commercial Real Estate
Commercial		246		598		3,211		4,055		77,022		81,077		—
Construction		—		—		—		—		15,878		15,878		—
Consumer
Consumer - home equity		219		—		223		442		79,976		80,418		—
Consumer - dealer auto and RV		771		230		104		1,105		45,466		46,571		—
Consumer - other		70		12		109		191		7,705		7,896		—
Commercial		—		2		35		37		54,408		54,445		—
Total	$	2,193	$	1,262	$	7,025	$	10,480	$	681,700	$	692,180	$	—

Impaired Loans

Management considers commercial loans, multi-family, residential real estate construction and commercial real estate 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, are selected for impairment testing. 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 following tables summarize impaired loans:

(Dollar amounts in thousands)

	March 31, 2013						December 31, 2012
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate	$	5,135	$	5,242	$	—	$	5,433	$	5,540	$	—
Residential single family		1,359		1,359		—		1,360		1,360		—
Residential construction loans		878		878		—		803		803		—
Consumer loans
Home Equity		196		223		—		130		130		—
Dealer auto and RV		11		11		—		14		14		—
With an allowance recorded:
Commercial Real Estate		7,920		8,083		1,049		7,981		8,144		1,110
Consumer Loans:
Home Equity		174		151		47		179		179		50
Dealer auto and RV		4		4		4		4		4		4
Total:
Commercial Real Estate		13,055		13,325		1,049		13,414		13,684		1,110
Consumer		385		389		51		327		327		54
Residential single family		1,359		1,359		—		1,360		1,360		—
Residential construction		878		878		—		803		803		—
Total	$	15,677	$	15,951	$	1,100	$	15,904	$	16,174	$	1,164

(Dollar amounts in thousands)

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial Real Estate	$	5,134	$	70	$	5,529	$	50
Commercial business loans		—		—		—		—
Residential single family		1,359		3		1,363		3
Residential construction loans		853		7
Consumer loans
Home equity		149		4
Dealer auto and RV		12		1
With an allowance recorded:
Commercial Real Estate		7,941		124		8,421		106
Commercial business loans		—		—		46		—
Residential single family		—		—		—
Consumer loans
Home equity		175		3		153		2
Dealer auto and RV		4		—		—		—
Total:
Commercial Real Estate	$	13,075	$	194	$	13,950	$	156
Commercial business loans		340		8		46		—
Residential single family		1,359		3		1,363		3
Residential construction loans		853		7
Consumer loans		—		—		153		2

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 March 31, 2013 and December 31, 2012. The balances are presented by class of loans:

(Dollar amounts in thousands)	March 31,		December 31,
	2013		2012
Commercial	$	36	$	35
Commercial Real Estate		3,157		3,432
Consumer
Consumer - Home Equity		189		293
Consumer - Dealer auto and RV		158		121
Consumer - other		121		109
Residential		3,687		3,403
Total	$	7,348	$	7,393

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. Delinquent 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 March 31, 2013 and December 31, 2012. 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.

As of March 31, 2013

(Dollar amounts in thousands)

					Pre-Modification Recorded Investment
			Pre-Modification
			Outstanding
	Number of		Recorded		Maturity Date		Deferral of
	Contracts		Investment		Extension		Principal Payments		Other		Total
Troubled Debt Restructurings
Residential construction		—	$	—	$	—		—	$	—	$	—
Commerical real estate		1		43		—		—		43		43
Consumer
Home equity		3		76		76		—		—		76
Dealer auto and RV		—		—		—		—		—		—
Troubled Debt Restructurings		4	$	119	$	76		—	$	43	$	119

As of December 31, 2012

(Dollar amounts in thousands)

					Pre-Modification Recorded Investment
			Pre-Modification
			Outstanding
	Number of		Recorded		Maturity Date		Deferral of
	Contracts		Investment		Extension		Principal Payments		Other		Total
Troubled Debt Restructurings
Residential construction		4	$	1,053	$	1,053		—	$	—	$	1,053
Commerical real estate		2		198		198		—		—		198
Consumer
Home equity		7		168		168		—		—		168
Dealer auto and RV		4		18		18		—		—		18
Troubled Debt Restructurings		17	$	1,437	$	1,437		—	$	—	$	1,437

The Company did not have any TDR’s that defaulted subsequent to their modification during the periods reported.