Loans Receivable

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Loans Receivable

3. Loans Receivable

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

(Dollar amounts In thousands)

	September 30,			December 31,
	2013			2012
Mortgage loans:
Residential real estate
Single family	$	335,419		$	326,005
Multi family		38,291			33,472
Construction		46,323			46,418
Total residential real estate		420,033			405,895
Commercial real estate
Commercial		79,299			81,077
Construction		16,816			15,878
Total commercial real estate		96,115			96,955
Subtotal mortgage loans		516,148			502,850
Other loans:
Consumer loans
Home equity loans		82,193			80,418
Dealer auto and RV loans		48,003			46,571
Other loans		7,097			7,896
Total consumer loans		137,293			134,885
Commercial business		51,148			54,445
Subtotal other loans		188,441			189,330
Total loans receivable		704,589			692,180
Less:
Allowance for loan losses		6,713			6,709
Deferred loan fees and net discounts		(2,133	)		(1,862	)
Loans in process		16,305			15,247
Subtotal		20,885			20,094
Net loans receivable	$	683,704		$	672,086

At September 30, 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 nine months of 2013, the qualitative factors for trends in volume and terms were increased for mortgages including single family 1-4, multi-family and commercial real estate as well as 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 loans. The Company has historically experienced very low levels of 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 September 30, 2013. The following tables present by portfolio segment, the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2013 and 2012:

Three months ended September 30, 2013

(Dollar amounts in thousands)

				Commercial
	Commercial			Real Estate			Consumer		Residential			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	543		$	2,102		$	1,062	$	2,425		$	596		$	6,728
Charge-offs		17			—			93		13			—			123
Recoveries		—			—			33		—			—			33
Provision		18			63			34		(40	)		—			75
Reallocations		(44	)		(107	)		63		233			(145	)		—
Ending Balance	$	500		$	2,058		$	1,099	$	2,605		$	451		$	6,713

Three months ended September 30, 2012

(Dollar amounts in thousands)

			Commercial
	Commercial		Real Estate			Consumer		Residential		Unallocated			Total
Allowance for loan losses:
Beginning balance	$	434	$	2,299		$	1,004	$	2,519	$	485		$	6,741
Charge-offs		32		163			206		153		—			554
Recoveries		—		—			27		—		—			27
Provision		94		—			174		82		—			350
Reallocations		—		(62	)		—		97		(35	)		—
Ending Balance	$	496	$	2,074		$	999	$	2,545	$	450		$	6,564

Nine months ended September 30, 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		17			7			346		24		2			396
Recoveries		—			—			100		—		—			100
Provision		38			138			72		52		—			300
Reallocations		(71	)		(148	)		242		36		(59	)		—
Ending Balance	$	500		$	2,058		$	1,099	$	2,605	$	451		$	6,713

Nine months ended September 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		32		163			445		277		—			917
Recoveries		—		—			77		17		—			94
Provision		144		—			322		384		—			850
Reallocations		—		(205	)		—		306		(101	)		—
Ending Balance	$	496	$	2,074		$	999	$	2,545	$	450		$	6,564

The following tables present by portfolio segment, the recorded investment in loans at September 30, 2013 and December 31, 2012:

As of September 30, 2013

(Dollar amounts in thousands)

			Commercial
	Commercial		Real Estate		Consumer		Residential		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	—	$	1,063	$	49	$	—	$	—	$	1,112
Ending balance: collectively evaluated for impairment	$	500	$	995	$	1,050	$	2,605	$	451	$	5,601
Loans Receivable:
Ending Balance	$	51,148	$	96,115	$	137,293	$	420,033	$	—	$	704,589
Ending balance: individually evaluated for impairment	$	—	$	14,688	$	394	$	2,207	$	—	$	17,289
Ending balance: collectively evaluated for impairment	$	51,148	$	81,427	$	136,899	$	417,826	$	—	$	687,300

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 September 30, 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 September 30, 2013

(Dollar amounts in thousands)

	Residential Real Estate Multi - family		Residential Real Estate Construction		Commercial Real Estate Commercial		Commercial Real Estate Construction		Commercial
Pass	$	38,291	$	42,563	$	64,903	$	16,816	$	51,071
Special Mention		—		681		1,369		—		22
Substandard		—		3,079		13,027		—		55
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
Ending Balance	$	38,291	$	46,323	$	79,299	$	16,816	$	51,148

As of December 31, 2012

(Dollar amounts in thousands)

	Residential Real Estate Multi - family		Residential Real Estate Construction		Commercial Real Estate Commercial		Commercial Real Estate Construction		Commercial
Pass	$	33,472	$	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 September 30, 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 September 30, 2013

(Dollar amounts in thousands)

	Residential Real Estate Single Family		Consumer Home Equity		Dealer Auto and RV		Other Consumer
Performing	$	331,904	$	81,892	$	47,832	$	7,017
Nonperforming		3,515		301		171		80
Total	$	335,419	$	82,193	$	48,003	$	7,097

As of December 31, 2012

(Dollar amounts in thousands)

	Residential Real Estate Single Family		Consumer Home Equity		Dealer Auto and RV		Other 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 $6.8 million and $7.4 million at September 30, 2013 and December 31, 2012, respectively. The TDRs included in non-performing loans amounted to $112,000 and $368,000 at September 30, 2013 and December 31, 2012, respectively. The Company also had TDR’s that were in compliance with their modified terms of $10.6 million and $8.2 million at September 30, 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

The following tables are an aging analysis of the investment of past due loans receivable as of September 30, 2013 and December 31, 2012:

(Dollar amounts in thousands)

As of September 30, 2013

	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Residential real estate
Single family	$	855	$	383	$	3,515	$	4,753	$	330,666	$	335,419	$	—
Construction		—		—		—		—		38,291		46,323		—
Multi-family		—		—		—		—		46,323		38,291		—
Commercial Real Estate
Commercial		75		397		2,631		3,103		76,196		79,299		—
Construction		—		—		—		—		16,816		16,816		—
Consumer
Consumer - home equity		129		—		237		366		81,827		82,193		—
Consumer - dealer auto and RV		433		172		169		774		47,229		48,003		—
Consumer - other		17		4		80		101		6,996		7,097		—
Commercial		1		—		33		34		51,114		51,148		—
Total	$	1,510	$	956	$	6,665	$	9,131	$	695,458	$	704,589	$	—

(Dollar amounts in thousands)

As of December 31, 2012

	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and 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, 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. 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:

Impaired Loans

As of September 30, 2013 and December 31, 2012

(Dollar amounts in thousands)

	September 30, 2013						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial Real Estate	$	5,532	$	5,639	$	—	$	5,433	$	5,540	$	—
Residential single family		1,357		1,357		—		1,360		1,360
Residential construction loans		850		850		—		803		803
Consumer loans
Home Equity		211		236		—		130		130		—
Dealer auto and RV		8		8		—		14		14		—
With an allowance recorded:
Commercial Real Estate		9,156		9,319		1,063		7,981		8,144		1,110
Consumer Loans:
Home Equity		172		150		46		179		179		50
Dealer auto and RV		3		3		3		4		4		4
Total:
Commercial Real Estate		14,688		14,958		1,063		13,414		13,684		1,110
Consumer		394		397		49		327		327		54
Residential single family		1,357		1,357		—		1,360		1,360		—
Residential construction		850		850		—		803		803		—
Total	$	17,289	$	17,562	$	1,112	$	15,904	$	16,174	$	1,164

(Dollar amounts in thousands)

	Three months ended September 30, 2013				Three months ended September 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate:
Commercial Real Estate	$	5,562	$	57	$	5,451	$	58
Residential loans		1,358		3		1,361		2
Residential construction loans		885		7		102		10
Consumer Loans:
Home equity		198		4		91		10
Dealer auto and RV		9		—		—		—
With an allowance recorded:
Commercial Real Estate:
Commercial Real Estate		9,176		116		8,248		105
Consumer Loans:
Home equity		172		3		152		1
Dealer auto and RV		3		—		—		—
Commercial business loans		—		—		37		2
Total:
Commercial Real Estate	$	14,738	$	173	$	13,699	$	163
Consumer		382		7		243		11
Residential		1,358		3		1,361		2
Residential construction loans		885		7		102		10
Commercial		—		—		37		2

(Dollar amounts in thousands)

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate:
Commercial Real Estate	$	5,325	$	177	$	5,488	$	170
Residential loans		1,359		7		1,362		7
Residential construction loans		894		25		421		32
Consumer Loans:
Home equity		179		10		43		10
Dealer auto and RV		10		2		—		—
With an allowance recorded:
Commercial Real Estate:
Commercial Real Estate		8,512		374		8,353		319
Consumer Loans:
Home equity		174		8		153		6
Dealer auto and RV		4		—		—		—
Commercial business loans		—		—		41		2
Total:
Commercial Real Estate	$	13,837	$	551	$	13,841	$	489
Consumer		367		20		196		16
Residential		1,359		7		1,362		7
Residential construction loans		894		25		421		32
Commercial		—		—		41		2

Nonaccrual Loans

Loans are considered nonaccrual upon reaching 90 days delinquent, 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 and TDR’s on nonaccrual status as of September 30, 2013 and December 31, 2012. The balances are presented by class of loans:

(Dollar amounts in thousands)

	September 30, 2013		December 31, 2012
Commercial	$	33	$	35
Commercial Real Estate		2,631		3,432
Consumer
Consumer - Home Equity		237		293
Consumer - Dealer auto and RV		168		121
Consumer - Other		80		109
Residential		3,516		3,403
Total	$	6,665	$	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 for the three and nine months ended September 30, 2013 and 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.

(Dollar amounts in thousands)

	For the Three Months ended
	September 30, 2013
			Pre-Modification Outstanding		Post-Modification Recorded Investment
	Number of Contracts		Recorded Investment		Maturity Date Extension		Deferral of Principal Payments		Other		Total
Troubled Debt Restructurings
Consumer
Home equity		1	$	25	$	25		—	$	—	$	25
Troubled Debt Restructurings		1	$	25	$	25	$	—	$	—	$	25

(Dollar amounts in thousands)

	For the Three Months ended
	September 30, 2012
			Pre-Modification Outstanding		Post-Modification Recorded Investment
	Number of Contracts		Recorded Investment		Maturity Date Extension		Deferral of Principal Payments		Other		Total
Troubled Debt Restructurings
Consumer
Home equity		6	$	139	$	139	$	—	$	—	$	139
Troubled Debt Restructurings		6	$	139	$	139	$	—	$	—	$	139

(Dollar amounts in thousands)

	For the Nine Months ended
	September 30, 2013
			Pre-Modification Outstanding		Post-Modification Recorded Investment
	Number of Contracts		Recorded Investment		Maturity Date Extension		Deferral of Principal Payments		Other		Total
Troubled Debt Restructurings
Commercial real estate		12	$	2,331	$	26	$	—	$	2,305	$	2,331
Consumer
Home equity		7		116		116		—		—		116
Troubled Debt Restructurings		19	$	2,447	$	142	$	—	$	2,305	$	2,447

(Dollar amounts in thousands)

	For the Nine Months ended
	September 30, 2012
			Pre-Modification Outstanding		Post-Modification Recorded Investment
	Number of Contracts		Recorded Investment		Maturity Date Extension		Deferral of Principal Payments		Other		Total
Troubled Debt Restructurings
Residential construction		3	$	947	$	947	$	—	$	—	$	947
Commercial real estate		1		100		—		—		100		100
Consumer
Home equity		6		139		139		—		—		139
Troubled Debt Restructurings		10	$	1,186	$	1,086	$	—	$	100	$	1,186

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