Loans | (5) LOANS The Company uses the following loan segments as described below: • One-to-four closed-end non-owner • Home equity lines of credit may be first or second mortgages secured by one-to-four • Junior liens are closed-end one-to-four • Multi-family loans are closed-end • Constructions loans may consist of residential or commercial properties and carry a fixed or variable rate for the term of the construction period. Construction loans have a maturity of between twelve and twenty-four months depending on the type of property. After the construction period, loans are amortized over a twenty-year period. All construction loans are under written under the Company’s commercial loan underwriting guidelines for the type of property being constructed. • Land loans consist of properties currently under development, land held for future development and land held for recreational purposes. Land loans used for recreational purposes are amortized for twenty years and typically carry a fixed rate of interest for one-to-five • Loans classified as farmland by the Company include properties that are used exclusively for the production of grain, livestock, poultry or swine. Loans secured by farmland have a maturity of up to twenty years and carry a fixed rate of interest for five to ten years. Loans secured by farmland are under-written under the Company’s commercial loan underwriting guidelines. • Non-residential non-owner non-residential • The Company originates secured and unsecured consumer loans. Collateral for consumer loans may include deposits, brokerage accounts, automobiles and other personal items. Consumer loans are typically fixed for a term of one to five years and are under-written using the Company’s consumer loan policy. • The Company originates unsecured and secured commercial loans. Secured commercial loans may have business inventory, accounts receivable and equipment as collateral. The typical customer may include all forms of manufacturing, retail and wholesale sales, professional services and various forms of agri-business interest. Commercial loans may be fixed or variable rate and typically have terms between one and five years. Set forth below is selected data relating to the composition of the loan portfolio by type of loan at June 30, 2017 and December 31, 2016. June 30, December 31, (Dollars in Thousands) Real estate loans: One-to-four $ 162,096 147,962 Home equity lines of credit 35,851 35,684 Junior liens 1,472 1,452 Multi-family 38,623 34,284 Construction 25,033 39,255 Land 20,049 23,840 Farmland 39,575 47,796 Non-residential 217,049 182,940 Total mortgage loans 539,748 513,213 Consumer loans 8,250 8,717 Commercial loans 90,857 88,907 Total other loans 99,107 97,624 Total loans 638,855 610,837 Deferred loan fees, net of cost (433 ) (439 ) Less allowance for loan losses (7,180 ) (6,112 ) Total loans, net $ 631,242 $ 604,286 Although the Company has a diversified loan portfolio, 84.5% and 84.0% of the portfolio was concentrated in loans secured by real estate at June 30, 2017 and December 31, 2016, respectively. At June 30, 2017 and December 31, 2016, the majority of these loans are located within the Company’s general operating area. The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the six month period ended June 30, 2017: Balance Charge Recoveries General Specific Ending (Dollars in Thousands) One-to-four $ 852 (49 ) 6 449 43 1,301 Home equity line of credit 260 — 8 85 (8 ) 345 Junior liens 8 — 2 3 (2 ) 11 Multi-family 412 — 417 192 (417 ) 604 Construction 277 — — (51 ) — 226 Land 1,760 — 363 (406 ) (838 ) 879 Farmland 778 — 6 (60 ) (7 ) 717 Non-residential 964 — 9 363 63 1,399 Consumer loans 208 (128 ) 45 12 36 173 Commercial loans 593 (225 ) 264 650 243 1,525 Total $ 6,112 (402 ) 1,120 1,237 (887 ) 7,180 The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2016: Balance Charge Recoveries General Specific Ending (Dollars in Thousands) One-to-four $ 1,030 — 167 (118 ) (227 ) 852 Home equity line of credit 201 (30 ) 14 59 16 260 Junior liens 8 — 14 — (14 ) 8 Multi-family 227 (421 ) — 323 283 412 Construction 377 — — (100 ) — 277 Land 1,379 — — (586 ) 967 1,760 Farmland 358 — — 420 — 778 Non-residential 1,139 — 10 (41 ) (144 ) 964 Consumer loans 358 (422 ) 293 (187 ) 166 208 Commercial loans 623 (595 ) 141 122 302 593 Total $ 5,700 (1,468 ) 639 (108 ) 1,349 6,112 The table below presents past due and non-accrual non-performing: Currently 30 - 89 Non-accrual Special Impaired Loans Total Substandard Doubtful (Dollars in Thousands) One-to-four $ 160,680 404 261 53 698 — $ 162,096 Home equity line of credit 35,289 — 402 — 160 — 35,851 Junior liens 1,434 3 — 27 8 — 1,472 Multi-family 36,765 — — — 1,858 — 38,623 Construction 25,033 — — — — — 25,033 Land 12,398 — 6,730 429 492 — 20,049 Farmland 37,402 — 455 478 1,240 — 39,575 Non-residential 202,950 2,485 207 1,505 9,902 — 217,049 Consumer loans 8,072 18 3 — 157 — 8,250 Commercial loans 87,906 — 521 716 1,714 — 90,857 Total $ 607,929 2,910 8,579 3,208 16,229 — $ 638,855 The table below presents past due and non-accrual non-performing: Currently 30 - 89 Non-Accrual Special Impaired Loans Total Substandard Doubtful (Dollars in Thousands) One-to-four 145,069 896 270 744 983 — 147,962 Home equity line of credit 35,087 22 402 25 148 — 35,684 Junior liens 1,407 4 — 30 11 — 1,452 Multi-family 31,280 — — — 3,004 — 34,284 Construction 39,255 — — — — — 39,255 Land 15,581 — 7,675 35 549 — 23,840 Farmland 44,832 — — 674 2,290 — 47,796 Non-residential 172,395 — 208 3 10,334 — 182,940 Consumer loans 8,354 28 3 — 332 — 8,717 Commercial loans 84,913 261 516 603 2,614 — 88,907 Total 578,173 1,211 9,074 2,114 20,265 — 610,837 At June 30, 2017 and December 31, 2016, there were no loans more than 90 days past due and accruing interest. The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of June 30, 2017 and December 31, 2016, by portfolio segment and based on the impairment method. June 30, 2017: Commercial Land Commercial Residential Consumer Total (Dollars in Thousands) Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 310 561 71 — 37 979 Collectively evaluated for impairment 1,215 544 2,649 1,657 136 6,201 Total ending allowance balance $ 1,525 1,105 2,720 1,657 173 7,180 Loans: Loans individually evaluated for impairment $ 2,235 7,222 13,662 1,529 160 24,808 Loans collectively evaluated for impairment 88,622 37,860 281,585 197,890 8,090 614,047 Total ending loans balance $ 90,857 45,082 295,247 199,419 8,250 638,855 December 31, 2016: Commercial Land Commercial Residential Consumer Total (Dollars in Thousands) Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 28 1,036 — — 84 1,148 Collectively evaluated for impairment 565 1,001 2,154 1,120 124 4,964 Total ending allowance balance $ 593 2,037 2,154 1,120 208 6,112 Loans: Loans individually evaluated for impairment $ 3,130 8,224 15,836 1,814 335 29,339 Loans collectively evaluated for impairment 85,777 54,871 249,184 183,284 8,382 581,498 Total ending loans balance $ 88,907 63,095 265,020 185,098 8,717 610,837 The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions and the market value of the underlying collateral. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred. The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based on pre-determined Excellent - Very Good - Satisfactory - Acceptable - Watch - Special Mention - Non-financial Substandard - Doubtful - work-out work-out Loss The following credit risk standards are assigned to consumer loans: Satisfactory - open-end closed-end Substandard - open-end closed-end Loss - closed-end open-end 120-day 180-day A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at June 30, 2017 and December 31, 2016 were as follows: June 30, 2017 Pass Special Impaired Loans Total Specific Allowance Substandard Doubtful (Dollars in Thousands) One-to-four 161,084 53 959 — 162,096 — 1,301 Home equity line of credit 35,289 — 562 — 35,851 — 345 Junior liens 1,437 27 8 — 1,472 — 11 Multi-family 36,765 — 1,858 — 38,623 — 604 Construction 25,033 — — — 25,033 — 226 Land 12,398 429 7,222 — 20,049 561 318 Farmland 37,402 478 1,695 — 39,575 69 648 Non-residential 205,435 1,505 10,109 — 217,049 2 1,397 Consumer loans 8,090 — 160 — 8,250 37 136 Commercial loans 87,906 716 2,235 — 90,857 310 1,215 Total 610,839 3,208 24,808 — 638,855 979 6,201 December 31, 2016 Pass Special Impaired Loans Total Specific Allowance Substandard Doubtful (Dollars in Thousands) One-to-four $ 145,965 744 1,253 — 147,962 — 852 Home equity line of credit 35,109 25 550 — 35,684 — 260 Junior liens 1,411 30 11 — 1,452 — 8 Multi-family 31,280 — 3,004 — 34,284 — 412 Construction 39,255 — — — 39,255 — 277 Land 15,581 35 8,224 — 23,840 1,036 724 Farmland 44,832 674 2,290 — 47,796 — 778 Non-residential 172,395 3 10,542 — 182,940 — 964 Consumer loans 8,382 — 335 — 8,717 84 124 Commercial loans 85,174 603 3,130 — 88,907 28 565 Total $ 579,384 2,114 29,339 — 610,837 1,148 4,964 Impaired loans by classification type and the related valuation allowance amounts at June 30, 2017 were as follows: At June 30, 2017 For the six month period Impaired loans with no specific allowance Recorded Unpaid Related Average Interest (Dollars in One-to-four $ 959 959 — 2,095 62 Home equity line of credit 562 562 — 562 17 Junior liens 8 8 — 10 — Multi-family 1,858 1,858 — 1,337 — Construction — — — — — Land 533 533 — 777 22 Farmland 1,569 1,569 — 1,287 12 Non-residential 10,087 10,087 — 9,968 266 Consumer loans 13 13 — 16 — Commercial loans 1,652 1,652 — 1,494 62 Total 17,241 17,241 — 17,546 441 Impaired loans with a specific allowance One-to-four — — — — — Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — — — Construction — — — — — Land 6,689 6,689 561 6,680 — Farmland 126 126 69 326 — Non-residential 22 22 2 210 1 Consumer loans 147 147 37 271 — Commercial loans 583 583 310 546 7 Total 7,567 7,567 979 8,033 8 Total $ 24,808 24,808 979 25,579 449 Impaired loans by classification type and the related valuation allowance amounts at December 31, 2016 were as follows: At December 31, 2016 For the year ended Impaired loans with no specific allowance Recorded Unpaid Related Average Interest (Dollars in One-to-four $ 1,253 1,253 — 1,470 67 Home equity line of credit 550 550 — 390 24 Junior liens 11 11 — 13 1 Multi-family 3,004 3,004 — 3,005 172 Construction — — — — — Land 1,553 2,513 — 7,868 38 Farmland 2,290 2,290 — 1,563 120 Non-residential 10,542 10,542 — 9,363 485 Consumer loans — — — 21 1 Commercial loans 2,865 2,865 — 3,168 112 Total 22,068 23,028 — 26,861 1,020 Impaired loans with a specific allowance One-to-four — — — 452 — Home equity line of credit — — — — — Junior liens — — — — — Multi-family — — — 910 — Construction — — — — — Land 6,671 6,671 1,036 1,811 485 Farmland — — — 533 — Non-residential — — — — — Consumer loans 335 335 84 273 — Commercial loans 265 265 28 754 24 Total 7,271 7,271 1,148 4,733 509 Total $ 29,339 30,299 1,148 31,594 1,529 On a periodic basis, the Bank may modify the terms of certain loans. At December 31, 2016, the Company had eight loans, representing three lending relationships, classified as performing TDRs. During the six month period ended June 30, 2017, the Company removed one lending relationship from TDR status and one lending relationship had three loans to pay off. One non-residential The following table provides the number of loans remaining in each category as of June 30, 2017 and December 31, 2016 that the Company had previously modified in a TDR: Number Pre-Modification Post June 30, 2017 Non-residential 3 $ 3,388,370 3,388,370 December 31, 2016 Multi-family 3 $ 815,273 815,273 Non-residential 5 5,646,223 5,646,223 There were no loans as of June 30, 2017 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At June 30, 2017, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR. |