NOTE 8 — LOANS RECEIVABLE

Loans receivable are summarized as follows:

	At
	March 31, 2014			December 31, 2013
	(in thousands)
Held for investment:
Residential
Residential mortgages	$	360,992		$	371,961

Commercial
Real estate-commercial		122,294			129,345
Real estate-residential		24,123			20,005
Real estate-multi-family		18,197			16,623
Construction loans		6,915			8,773
Commercial and industrial loans		7,630			6,849
Total commercial loans		179,159			181,595

Consumer
Home equity and second mortgage		64,654			64,202
Other consumer		1,595			1,697
Total consumer loans		66,249			65,899

Total loans		606,400			619,455
Net deferred loan origination costs and unamortized premiums		1,318			1,288
Less allowance for loan losses		(4,062	)		(6,575	)
Total loans receivable	$	603,656		$	614,168

Held for sale:
Residential
Residential mortgages	$	1,319		$	349

The following table presents the composition of the commercial loan portfolio by credit quality indicators:

	At March 31, 2014
			Special
	Pass		mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	110,425	$	2,955	$	8,914	$	—	$	122,294
Real estate-residential		22,033		483		1,607		—		24,123
Real estate-multi-family		14,702		—		3,495		—		18,197
Construction loans		6,682		—		233		—		6,915
Commercial and industrial loans		7,600		30		—		—		7,630
Total	$	161,442	$	3,468	$	14,249	$	—	$	179,159

	At December 31, 2013
			Special
	Pass		mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	113,260	$	7,142	$	8,943	$	—	$	129,345
Real estate-residential		17,182		487		2,336		—		20,005
Real estate-multi-family		13,114		—		3,509		—		16,623
Construction loans		5,596		—		3,177		—		8,773
Commercial and industrial loans		6,817		32		—		—		6,849
Total	$	155,969	$	7,661	$	17,965	$	—	$	181,595

In order to assess and monitor the credit risk associated with commercial loans, the Company employs a risk rating methodology whereby each commercial loan is initially assigned a risk grade. At least annually, all risk ratings are reviewed in light of information received such as tax returns, rent rolls, cash flow statements, appraisals, and any other information which may affect the then-current risk rating, which is adjusted upward or downward as needed. At the end of each quarter the risk ratings are summarized and become a component of the evaluation of the allowance for loan losses. The Company’s risk rating definitions mirror those promulgated by banking regulators and are as follows:

Pass: A good quality loan that is characterized by satisfactory liquidity; reasonable debt capacity and coverage; acceptable management in all critical positions and normal operating results for its peer group. The Company has grades 1 through 6 within the Pass category which reflect the increasing amount of attention paid to the individual loan because of, among other things, trends in debt service coverage, management weaknesses, or collateral values.

Special mention: A loan that has potential weaknesses that deserves management’s close attention. Although the loan is currently protected, if left uncorrected, potential weaknesses may result in the deterioration of the loan’s repayment prospects or in the borrower’s future credit position. Potential weaknesses include: weakening financial condition; an unrealistic repayment program; inadequate sources of funds; lack of adequate collateral; credit information; or documentation. There is currently the capacity to meet interest and principal payments, but further adverse business, financial, or economic conditions may impair the borrower’s capacity or willingness to pay interest and repay principal.

Substandard: A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Although no loss of principal or interest is presently apparent, there is the distinct possibility that a partial loss of interest and/or principal will be sustained if the deficiencies are not corrected. There is a current identifiable vulnerability to default and the dependence upon favorable business, financial, or economic conditions to meet timely payment of interest and repayment of principal.

Doubtful: A loan which has all the weaknesses inherent in a substandard asset with the added characteristic 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 important and reasonable specific pending factors which may work to strengthen the asset, classification as an estimated loss is deferred until a more exact status is determined. Pending factors include: proposed merger, acquisition, liquidation, capital injection, perfecting liens on additional collateral, and refinancing plans.

Loss: Loans which are considered uncollectible and have been charged off. The Company has charged-off all loans classified as loss.

Loans classified as special mention, substandard or doubtful are monitored individually on a monthly basis. Loans which require impairment evaluation are placed on nonaccrual status and are classified as substandard or doubtful.

The following table presents the composition of the residential mortgage and consumer loan portfolios by credit quality indicators:

	At March 31, 2014
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	359,977	$	1,015	$	360,992
Home equity and second mortgage		64,455		199		64,654
Other consumer		1,595		—		1,595
Total	$	426,027	$	1,214	$	427,241

	At December 31, 2013
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	368,967	$	2,994	$	371,961
Home equity and second mortgage		63,902		300		64,202
Other consumer		1,697		—		1,697
Total	$	434,566	$	3,294	$	437,860

In order to assess and monitor the credit risk associated with residential mortgage loans and consumer loans which include second mortgage loans and home equity secured lines of credit, the Company relies upon the payment status of the loan. Residential mortgage and other consumer loans 90 days or more past due are placed on nonaccrual status, classified as nonperforming, and evaluated for impairment.

The following table presents by class nonperforming loans including impaired loans and loan balances 90 days or more past due for which the accrual of interest has been discontinued:

	At
	March 31, 2014		December 31, 2013
	(in thousands)
Residential
Residential mortgages	$	1,015	$	2,994
Commercial
Real estate-commercial		897		774
Real estate-residential		682		896
Real estate-multi-family		191		191
Construction loans		233		3,177
Commercial and industrial loans		—		—
Consumer
Home equity and second mortgage		199		300
Other consumer		—		—
Total nonperforming loans	$	3,217	$	8,332

The following tables present loans individually evaluated for impairment by class:

	At March 31, 2014
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
	(in thousands)
With an allowance recorded:
Residential
Residential mortgages	$	1,127	$	1,127	$	127	$	1,131	$	—
Commercial
Real estate-residential		498		498		46		791		—
Construction loans		233		233		21		1,705		—
		1,858		1,858		194		3,627		—
With no allowance recorded:
Residential
Residential mortgages		22		33		—		603		—
Commercial
Real estate-commercial		897		897		—		835		—
Real estate-residential		184		322		—		184		—
Real estate-multifamily		191		372		—		191		—
Consumer
Home equity and second mortgage		16		16		—		39		—
		1,310		1,640		—		1,852		—
Total	$	3,168	$	3,498	$	194	$	5,479	$	—

	At December 31, 2013
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
	(in thousands)
With an allowance recorded:
Residential
Residential mortgages	$	1,135	$	1,135	$	128	$	1,620	$	—
Commercial
Real estate-commercial		—		—		—		109		—
Real estate-residential		712		712		77		211		—
Construction loans		3,177		3,375		2,021		3,701		—
		5,024		5,222		2,226		5,641		—
With no allowance recorded:
Residential
Residential mortgages		1,184		1,184		—		241		—
Commercial
Real estate-commercial		774		774		—		607		—
Real estate-residential		184		321		—		108		—
Real estate-multi-family		191		372		—		77		—
Consumer
Home equity and second mortgage		47		81		—		7		—
		2,380		2,732		—		1,040		—
Total	$	7,404	$	7,954	$	2,226	$	6,681	$	—

The following tables present the contractual aging of delinquent loans by class:

	At March 31, 2014
	Current		30-59 Days past due		60-89 Days past due		Loans past due 90 days or more		Total past due		Total loans		Recorded investment over 90 days and accruing interest
	(in thousands)
Residential
Residential mortgages	$	359,724	$	173	$	80	$	1,015	$	1,268	$	360,992	$	—
Commercial
Real estate-commercial		121,397		—		131		766		897		122,294		—
Real estate-residential		23,441		—		—		682		682		24,123		—
Real estate-multi-family		18,006		—		—		191		191		18,197		—
Construction loans		6,682		—		—		233		233		6,915		—
Commercial and industrial loans		7,630		—		—		—		—		7,630		—
Consumer
Home equity and second mortgage		64,314		105		36		199		340		64,654		—
Other consumer		1,595		—		—		—		—		1,595		—
Total	$	602,789	$	278	$	247	$	3,086	$	3,611	$	606,400	$	—

	At December 31, 2013
	Current		30-59 Days past due		60-89 Days past due		Loans past due 90 days or more		Total past due		Total loans		Recorded investment over 90 days and accruing interest
	(in thousands)
Residential
Residential mortgages	$	369,271	$	111	$	—	$	2,579	$	2,690	$	371,961	$	—
Commercial
Real estate-commercial		127,786		785		—		774		1,559		129,345		—
Real estate-residential		18,589		180		340		896		1,416		20,005		—
Real estate-multi-family		16,432		—		—		191		191		16,623		—
Construction loans		5,596		—		—		3,177		3,177		8,773		—
Commercial and industrial loans		6,849		—		—		—		—		6,849		—
Consumer
Home equity and second mortgage		63,543		355		4		300		659		64,202		—
Other consumer		1,686		7		4		—		11		1,697		—
Total	$	609,752	$	1,438	$	348	$	7,917	$	9,703	$	619,455	$	—

Activity in the allowance for loan losses for the three months ended March 31, 2014 and 2013 is summarized as follows:

	Balance January 1, 2014		Provision			Charge-offs			Recoveries		Balance March 31, 2014
	(in thousands)
Residential
Residential mortgages	$	1,722	$	60		$	(169	)	$	1	$	1,614
Commercial
Real estate-commercial		1,220		(270	)		—			—		950
Real estate-residential		437		82			(107	)		—		412
Real estate-multi-family		136		1			—			—		137
Construction loans		2,208		326			(2,179	)		—		355
Commercial and industrial loans		97		3			—			1		101
Consumer
Home equity and second mortgage		214		60			(47	)		—		227
Other consumer		50		(3	)		(14	)		1		34
Unallocated		491		(259	)		—			—		232
Total	$	6,575	$	—		$	(2,516	)	$	3	$	4,062

	Balance January 1, 2013		Provision			Charge-offs			Recoveries		Balance March 31, 2013
	(in thousands)
Residential
Residential mortgages	$	1,849	$	49		$	(98	)	$	—	$	1,800
Commercial
Real estate-commercial		1,754		(8	)		(435	)		—		1,311
Real estate-residential		608		52			(59	)		—		601
Real estate-multi-family		245		(8	)		—			—		237
Construction loans		1,697		297			(111	)		11		1,894
Commercial and industrial loans		119		3			—			3		125
Consumer
Home equity and second mortgage		251		(33	)		(15	)		8		211
Other consumer		11		3			(3	)		—		11
Unallocated		388		84			—			—		472
Total	$	6,922	$	439		$	(721	)	$	22	$	6,662

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment.

Loans receivable include certain loans that have been modified as troubled debt restructurings (“TDRs”), where economic concessions have been granted to borrowers experiencing financial difficulties. The objective for granting the concessions is to maximize the recovery of the investment in the loan and may include reductions in the interest rate, payment extensions, forgiveness of interest or principal, forbearance or other actions. TDRs are classified as nonperforming at the time of restructuring and typically return to performing status after considering the borrower’s positive repayment performance for a reasonable period of time, usually six months.

Loans modified in a TDR are evaluated individually for impairment based on the present value of expected cash flows or the fair value of the underlying collateral less selling costs for collateral dependent loans. If the value of the modified loan is less than the recorded investment in the loan, impairment is recognized through an increase by an additional provision to the allowance for loan losses. In periods subsequent to modification, TDRs are evaluated for possible additional impairment.

There were no new loan modifications deemed TDRs during the three months ended March 31, 2014 and 2013. Additionally, there were no loans previously identified as TDRs which defaulted on the modified terms during the three months ended March 31, 2014 and 2013.

In 2013, the Company acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable that all contractually required payments would not be collected. The following table presents information regarding the outstanding principal balance and related carrying amount:

	At March 31, 2014		At December 31, 2013
	(in thousands)
Outstanding principal balance	$ 743	$	808
Carrying amount	413		444

The table below presents changes in the amortizable yield for purchased credit-impaired loans as follows for the three months ended March 31, 2014:

	At March 31, 2014
	(in thousands)
Balance at beginning of period	$	154
Acquisition of impaired loans		—
Accretion		(12	)
Balance at end of period	$	142

There has been no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of March 31, 2014 and December 31, 2013.

The following tables present the ending balance of the allowance for loan losses and ending loan balance by portfolio and by class based on impairment method as of March 31, 2014. Acquired loans were recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

	Evaluated for impairment
Allowance for loan losses	Loans acquired without credit deterioration		Loans acquired with credit deterioration		Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	—	$	—	$	127	$	1,487	$	1,614
Commercial
Real estate-commercial		—		—		—		950		950
Real estate-residential		—		—		46		366		412
Real estate-multi-family		—		—		—		137		137
Construction loans		—		—		21		334		355
Commercial and industrial loans		—		—		—		101		101
Consumer
Home equity and second mortgage		—		—		—		227		227
Other consumer		—		—		—		34		34
Unallocated		—		—		—		232		232
Total	$	—	$	—	$	194	$	3,868	$	4,062

	Evaluated for impairment
Loans receivable	Loans acquired without credit deterioration		Loans acquired with credit deterioration		Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	49,198	$	22	$	1,127	$	310,645	$	360,992
Commercial
Real estate-commercial		12,229		—		897		109,168		122,294
Real estate-residential		4,913		184		498		18,528		24,123
Real estate-multi-family		1,092		191		—		16,914		18,197
Construction loans		—		—		233		6,682		6,915
Commercial and industrial loans		258		—		—		7,372		7,630
Consumer
Home equity and second mortgage		23,706		16		—		40,932		64,654
Other consumer		114		—		—		1,481		1,595
Total	$	91,510	$	413	$	2,755	$	511,722	$	606,400

The following tables present the ending balance of the allowance for loan losses and ending loan balance by portfolio and by class based on impairment method as of December 31, 2013. Acquired loans were recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

	Evaluated for impairment
Allowance for loan losses	Loans acquired without credit deterioration		Loans acquired with credit deterioration		Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	—	$	—	$	128	$	1,594	$	1,722
Commercial
Real estate-commercial		—		—		—		1,220		1,220
Real estate-residential		—		—		77		360		437
Real estate-multi-family		—		—		—		136		136
Construction loans		—		—		2,021		187		2,208
Commercial and industrial loans		—		—		—		97		97
Consumer
Home equity and second mortgage		—		—		—		214		214
Other consumer		—		—		—		50		50
Unallocated		—		—		—		491		491
Total	$	—	$	—	$	2,226	$	4,349	$	6,575

	Evaluated for impairment
Loans receivable	Loans acquired without credit deterioration		Loans acquired with credit deterioration		Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	50,985	$	22	$	2,297	$	318,657	$	371,961
Commercial
Real estate-commercial		12,787		—		774		115,784		129,345
Real estate-residential		4,913		184		712		14,196		20,005
Real estate-multi-family		1,116		191		—		15,316		16,623
Construction loans		—		—		3,177		5,596		8,773
Commercial and industrial loans		279		—		—		6,570		6,849
Consumer
Home equity and second mortgage		24,806		47		—		39,349		64,202
Other consumer		126		—		—		1,571		1,697
Total	$	95,012	$	444	$	6,960	$	517,039	$	619,455