XML 22 R11.htm IDEA: XBRL DOCUMENT

6. Loans and Allowance For Loan Losses

3 Months Ended

Mar. 31, 2016

6. Loans and Allowance for Loan Losses

The composition of the Bank’s loan portfolio is as follows:

(in 000’s)	March 31, 2016	December 31, 2015
Commercial and industrial	$ 3,216	$ 3,062
Commercial real estate	24,598	26,414
Consumer real estate	2,794	2,841
Consumer loans other	1,109	1,202
Total loans	$ 31,717	$ 33,519

At March 31, 2016 and December 31, 2015, unamortized net deferred fees totaled $305,326 and $253,139 respectively, and are included in the related loan accounts. At March 31, 2016 and December 31, 2015, the unearned discount totaled $23,539 and $22,272, respectively, and is included in the related loan accounts.

The determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance is the accumulation of three components that are calculated based on various independent methodologies that are based on management’s estimates. The three components are as follows:

· Specific Loan Evaluation Component – Includes the specific evaluation of impaired loans.

· Historical Charge-Off Component – Applies an eight-quarter rolling historical charge-off rate to all portfolio segments of non-classified loans.

· Qualitative Factors Component – The loan portfolio is broken down into portfolio segments, upon which multiple factors (such as delinquency trends, economic conditions, concentrations, growth/volume trends, and management/staff ability) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Qualitative Factors Component.

All of these factors may be susceptible to significant change. During the quarter ended March 31, 2016 the Bank did not change any of its qualitative factors in any segment of the loan portfolio. In addition, the average historical loss factors were relatively unchanged as there were minimal charge-offs during the quarter. Credits to the provision for the three months ended March 31, 2016 and 2015 were primarily related to the improvement in commercial and industrial historical loss factors as well as the origination of SBA loans that are accounted for at fair value and not included in the calculation of the allowance for loan losses. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. The following table presents an analysis of the allowance for loan losses.

(in 000's)	For the Three months ended March 31, 2016
	Commercial and industrial			Commercial real estate			Consumer real estate		Consumer loans Other			Total
Beginning balance	$	151		$	250		$	8	$	9		$	418
Provision (credit) for loan losses		(32	)		(9	)		6		—			(35	)

Charge-offs		—			—			—		(2	)		(2	)
Recoveries		1			—			—		2			3
Net (charge-offs)recoveries		1			—			—		—			1

Ending balance	$	120		$	241		$	14	$	9		$	384

(in 000's)	For the Three months ended March 31, 2015
	Commercial and industrial			Commercial real estate		Consumer real estate		Consumer loans Other			Total
Beginning balance	$	403		$	300	$	20	$	12		$	735
Credit for loan losses		(60	)		—		—		—			(60	)

Charge-offs		—			—		—		(12	)		(12	)
Recoveries		1			—		1		15			17
Net recoveries		1			—		1		3			5

Ending balance	$	344		$	300	$	21	$	15		$	680

(in 000's)			March 31, 2016
	Commercial and industrial		Commercial real estate		Consumer real estate		Consumer loans other		Total

Period-end amount allocated to:

Loans individually evaluated for impairment	$	9	$	110	$	—	$	—	$	119
Loans collectively evaluated for impairment		111		131		14		9		265
	$	120	$	241	$	14	$	9	$	384

Loans, ending balance:
Loans individually evaluated for impairment	$	194	$	2,034	$	—	$	—	$	2,228
Loans collectively evaluated for impairment		3,022		22,564		2,794		1,109		29,489
Total	$	3,216	$	24,598	$	2,794	$	1,109	$	31,717

(in 000's)					December 31, 2015
	Commercial and industrial		Commercial real estate		Consumer real estate		Consumer loans other		Total

Period-end amount allocated to:

Loans indivdually evaluated for impairment	$	—	$	91	$	—	$	—	$	91
Loans collectively evaluated for impairment		151		159		8		9		327
	$	151	$	250	$	8	$	9	$	418

Loans, ending balance:
Loans indivdually evaluated for impairment	$	439	$	2,076	$	—	$	—	$	2,515
Loans collectively evaluated for impairment		2,623		24,338		2,841		1,202		31,004
Total	$	3,062	$	26,414	$	2,841	$	1,202	$	33,519

Nonperforming and Nonaccrual and Past Due Loans

An age analysis of past due loans, segregated by class of loans, as of March 31, 2016 is as follows:

			Accruing		Nonaccrual
	Loans		Loans 90 or		Loans 90 or
(In 000's)	30-89 Days		More Days		More Days		Total Past		Current
	Past Due		Past Due		Past Due		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	58	$	—	$	110	$	168	$	1,349	$	1,517
SBA loans		—		—		40		40		215		255
Asset-based		—		—		289		289		1,155		1,444
Total Commercial and industrial		58		—		439		497		2,719		3,216

Commercial real estate:
Commercial mortgages		—		27		1,323		1,350		10,953		12,303
SBA loans		—		—		266		266		500		766
Construction		—		—		—		—		1,235		1,235
Religious organizations		—		—		445		445		9,849		10,294
Total Commercial real estate		—		27		2,034		2,061		22,537		24,598

Consumer real estate:
Home equity loans		31		148		358		537		345		882
Home equity lines of credit		—		—		—		—		20		20
1-4 family residential mortgages		—		—		129		129		1,763		1,892
Total consumer real estate		31		148		487		666		2,128		2,794

Total real estate		31		175		2,521		2,727		24,665		27,392

Consumer and other:
Student loans		100		85		—		185		822		1,007
Other		—		1		—		1		101		102
Total consumer and other		100		86		—		186		923		1,109

Total loans	$	189	$	261	$	2,960	$	3,410	$	28,307	$	31,717

An age analysis of past due loans, segregated by class of loans, as of December 31, 2015 is as follows:

			Accruing		Nonaccrual
	Loans		Loans 90 or		Loans 90 or
	30-89 Days		More Days		More Days		Total Past		Current
(In 000's)	Past Due		Past Due		Past Due		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	—	$	—	$	110	$	110	$	1,425	$	1,535
SBA loans		—		—		40		40		—		40
Asset-based		11		—		289		300		1,187		1,487
Total Commercial and industrial		11		—		439		450		2,612		3,062

Commercial real estate:
Commercial mortgages		169		39		1,335		1,543		12,231		13,774
SBA loans		—		—		271		271		82		353
Construction		—		—		—		—		2,175		2,175
Religious organizations		—		—		471		471		9,641		10,112
Total Commercial real estate		169		39		2,077		2,285		24,129		26,414

Consumer real estate:
Home equity loans		56		125		358		539		358		897
Home equity lines of credit		—		—		—		—		20		20
1-4 family residential mortgages		35		—		129		164		1,760		1,924
Total consumer real estate		91		125		487		703		2,138		2,841

Total real estate		260		164		2,564		2,988		26,267		29,255

Consumer and other:
Student loans		66		129		—		195		886		1,081
Other		2		—		—		2		119		121
Total consumer and other		68		129		—		197		1,005		1,202

Total loans	$	339	$	293	$	3,003	$	3,635	$	29,884	$	33,519

Loan Origination/Risk Management. The Bank has lending policies and procedures in place to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with periodic reports related to loan origination, asset quality, concentrations of credit, loan delinquencies and non-performing and emerging problem loans. Diversification in the portfolio is a means of managing risk with fluctuations in economic conditions.

Credit Quality Indicators. For commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality. Each loan’s internal risk weighting is assigned at origination and updated at least annually and more frequently if circumstances warrant a change in risk rating. The Bank uses a 1 through 8 loan grading system that follows regulatory accepted definitions as follows:

· Risk ratings of “1” through “3” are used for loans that are performing and meet and are expected to continue to meet all of the terms and conditions set forth in the original loan documentation and are generally current on principal and interest payments. Loans with these risk ratings are reflected as “Good/Excellent” and “Satisfactory” in the following table.

· Risk ratings of “4” are assigned to “Pass/Watch” loans which may require a higher degree of regular, careful attention. Borrowers may be exhibiting weaker balance sheets and positive but inconsistent cash flow coverage. Borrowers in this classification generally exhibit a higher level of credit risk and are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Loans with this rating would not normally be acceptable as new credits unless they are adequately secured and/or carry substantial guarantors. Loans with this rating are reflected as “Pass” in the following table.

· Risk ratings of “5” are assigned to “Special Mention” loans that do not presently expose the Bank to a significant degree of risks, but have potential weaknesses/deficiencies deserving Management’s closer attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. No loss of principal or interest is envisioned. Borrower is experiencing adverse operating trends, which potentially could impair debt, services capacity and may necessitate restructuring of credit. Secondary sources of repayment are accessible and considered adequate to cover the Bank's exposure. However, a restructuring of the debt should result in repayment. The asset is currently protected, but is potentially weak. This category may include credits with inadequate loan agreements, control over the collateral or an unbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized but exceptions are considered material. These borrowers would have limited ability to obtain credit elsewhere.

· Risk ratings of “6” are assigned to “Substandard” loans which are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets must have a well-defined weakness. They are characterized by the distinct possibility that some loss is possible if the deficiencies are not corrected. The borrower’s recent performance indicated an inability to repay the debt, even if restructured. Primary source of repayment is gone or severely impaired and the Bank may have to rely upon the secondary source. Secondary sources of repayment (e.g., guarantors and collateral) should be adequate for a full recovery. Flaws in documentation may leave the bank in a subordinated or unsecured position when the collateral is needed for the repayment.

· Risk ratings of “7” are assigned to “Doubtful” loans which have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weakness makes the collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. The borrower's recent performance indicates an inability to repay the debt. Recovery from secondary sources is uncertain. The possibility of a loss is extremely high, but because of certain important and reasonably- specific pending factors, its classification as a loss is deferred.

· Risk rating of “8” are assigned to “Loss” loans which are considered non-collectible and do not warrant classification as active assets. They are recommended for charge-off if attempts to recover will be long term in nature. This classification does not mean that an asset has no recovery or salvage value, but rather, that it is not practical or desirable to defer writing off the loss, although a future recovery may be possible. Loss should always be taken in the period in which they surface and are identified as non-collectible as a result there is no tabular presentation.

For consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis. A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan, but no later than 90 days past due. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection.

The tables below detail the Bank’s loans by class according to their credit quality indictors discussed above.


(In 000's)			Commercial Loans March 31, 2016
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard		Doubtful	Total



Commercial and industrial:
Commercial	$ 300	$ 949	$ 15	$ -	$ 253		$ -	$ 1,517
SBA loans	-	215	-	-	40		-	255
Asset-based	-	863	216	-	289		76	1,444
	300	2,027	231	-	582		76	3,216
Commercial real estate:
Commercial mortgages	-	8,408	1,965	580	1,128		222	12,303
SBA Loans	-	500	-	-	266		-	766
Construction	-	1,235	-	-	-		-	1,235
Religious organizations	38	9,096	-	715	445		-	10,294
	38	19,239	1,965	1,295	1,839		222	24,598

Total commercial loans	$ 338	$ 21,266	$ 2,196	$ 1,295	$ 2,421		$ 298	$ 27,814


			Residential Mortgage and Consumer Loans March 31, 2016
	Performing		Nonperforming			Total

Consumer Real Estate:
Home equity	$ 524		$ 358			$ 882
Home equity line of credit	20		-			20
1-4 family residential mortgages	1,763		129			1,892
	2,307		487			2,794

Consumer Other:
Student loans	1,007		-			1,007
Other	102		-			102
	1,109		-			1,109

Total consumer loans	$ 3,416		$ 487			$ 3,903

(In 000's)					Commercial Loans,
					December 31, 2015
	Good/						Special
	Excellent		Satisfactory		Pass		Mention		Substandard		Doubtful		Total

Commercial and industrial:
Commercial	$	285	$	922	$	16	$	58	$	254	$	—	$	1,535
SBA loans		—		—		—		—		40		—		40
Asset-based		—		900		222		—		289		76		1,487
		285		1,822		238		58		583		76		3,062
Commercial real estate:
Commercial mortgages		—		10,689		1,098		613		1,151		223		13,774
SBA Loans		—		82		—		—		271		—		353
Construction		—		2,175		—		—		—		—		2,175
Religious organizations		—		7,624		1,131		886		471		—		10,112
		—		20,570		2,229		1,499		1,893		223		26,414

Total commercial loans	$	285	$	22,392	$	2,467	$	1,557	$	2,476	$	299	$	29,476

			Residential Mortgage and
			Consumer Loans
			December 31, 2015

	Performing		Nonperforming		Total

Consumer Real Estate:
Home equity	$	539	$	358	$	897
Home equity line of credit		20		—		20
1-4 family residential mortgages		1,795		129		1,924
		2,354		487		2,841

Consumer Other:
Consumer Installment		—		—		—
Student loans		1,081		—		1,081
Other		121		—		121
		1,202		—		1,202

Total consumer loans	$	3,556	$	487	$	4,043

Impaired Loans. The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will record interest payments on the cost recovery basis.

In accordance with guidance provided by ASC 310-10, Accounting by Creditors for Impairment of a Loan, management employs one of three methods to determine and measure impairment: the Present Value of Future Cash Flow Method; the Fair Value of Collateral Method; or the Observable Market Price of a Loan Method. To perform an impairment analysis, the Company reviews a loan’s internally assigned grade, its outstanding balance, guarantors, collateral, strategy, and a current report of the action being implemented. Based on the nature of the specific loans, one of the impairment methods is chosen for the respective loan and any impairment is determined, based on criteria established in ASC 310-10.

The Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss. Specific reserves are allocated to cover “other-than-permanent” impairment for which the underlying collateral value may fluctuate with market conditions. There were no partial charge-offs during the three months ended March 31, 2016.

Consumer real estate and other loans are not individually evaluated for impairment, but collectively evaluated, because they are pools of smaller balance homogeneous loans.

Impaired loans as of March 31, 2016 are set forth in the following table.

(In 000's)	Unpaid Contractual		Recorded Investment		Recorded Investment		Total
	Principal		With No		With		Recorded		Related
	Balance		Allowance		Allowance		Investment		Allowance

Commercial and industrial:
Commercial	$	110	$	110	$	—	$	110	$	—
SBA Loans		40		40		—		40		—
Asset-based		289		—		46		46		9
Total commercial and industrial		439		150		46		196		9

Commercial real estate:
Commercial mortgages		1,535		808		515		1,323		106
SBA Loans		266		—		266		266		4
Religious organizations		445		445		—		445		—
Total commercial real estate		2,246		1,253		781		2,034		110

Total loans	$	2,685	$	1,403	$	827	$	2,228	$	119

Impaired loans as of December 31, 2015 are set forth in the following table.

(In 000's)	Unpaid Contractual		Recorded Investment		Recorded Investment		Total
	Principal		With No		With		Recorded		Related
	Balance		Allowance		Allowance		Investment		Allowance

Commercial and industrial:
Commercial	$	818	$	353	$	—	$	353	$	—
SBA loans		46		46		—		46		—
Asset-based		40		40		—		40		—
Total commercial and industrial		904		439		—		439		—

Commercial real estate:
Commercial mortgages		1,334		810		524		1,334		91
SBA Loans		271		271		—		271		—
Religious organizations		471		471		—		471		—
Total commercial real estate		2,076		1,552		524		2,076		91

Total loans	$	2,980	$	1,991	$	524	$	2,515	$	91

The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will record interest payments on the cost recovery basis. The following tables present additional information about impaired loans.

(In 000's)	Three Months Ended March 31, 2016				Three Months Ended March 31, 2015
	Average		Interest recognized		Average		Interest recognized
	Recorded		on impaired		Recorded		on impaired
	Investment		Loans		Investment		Loans

Commercial and industrial:
Commercial	$	109	$	—	$	335	$	—
SBA loans		39		—		62		—
Asset-based		46		—		15		1
Total commercial and industrial		194		—		412		1

Commercial real estate:
Commercial mortgages		1,329		2		869		—
SBA loans		268		2		116		—
Religious organizations		454		—		513		—
Total commercial real estate		2,051		4		1,498		—

Total loans	$	2,245	$	4	$	1,910	$	1

Troubled debt restructurings (“TDRs”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. The Company made modifications to certain loans in its commercial loan portfolio that included the term out of lines of credit to begin the amortization of principal. The terms of these loans do not include any financial concessions and are not consistent with the current market. Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt restructuring (i.e. whether the creditor has been granted a concession or is experiencing financial difficulties). Based on this review and evaluation, none of the modified loans met the criteria of a troubled debt restructuring. Therefore, the Company had no troubled debt restructurings at March 31, 2016 and December 31, 2015.