Loans | Note 6. Loans The Company originates loans for sale to other financial institutions which issue commercial mortgage backed securities or to secondary government guaranteed loan markets. The Company has elected the fair value option for the entirety of these loans to better reflect the economics of the transactions. At March 31, 2015, the fair value of these loans held for sale was $239.8 million and the unpaid principal balance was $235.0 million. Included in gain on sale of loans in the Statement of Operations were gains recognized from changes in fair value of $513,000 for the quarter ended March 31, 201 5. There were no amounts of changes in fair value related to credit risk. Interest earned on loans held for sale during the period held are recorded in Interest Income-Loans, including fees on the Statement of Operations. In the three months ended March 31, 2015, the Company recognized $1.7 million of gains upon the sale of loans. The Company analyzes credit risk prior to making loans, on an individual loan basis. The Company considers relevant aspects of the borrowers’ financial position and cash flow, past borrower performance, management’s knowledge of market conditions, collateral and the ratio of the loan amount to estimated collateral value in making its credit determinations. Major classifications of loans, excluding loans held for sale, are as follows (in thousands): March 31, December 31, 2015 2014 SBA non real estate $ 62,385 $ 62,425 SBA commercial mortgage SBA construction Total SBA loans Direct lease financing SBLOC Other specialty lending Other consumer loans Unamortized loan fees and costs Total loans, net of deferred loan costs $ 870,901 $ 874,593 Included in the table above are demand deposit overdrafts reclassified as loan balances totaling $2.5 million and $1.8 million at March 31, 2015 and December 31, 2014, respectively. Overdraft charge-offs and recoveries are reflected in the allowance for loan and lease losses. The following table provides information about impaired loans at March 31, 2015 and December 31, 2014 (in thousands): Recorded investment Unpaid principal balance Related allowance Average recorded investment Interest income recognized March 31, 2015 Without an allowance recorded SBA non real estate $ 350 $ 350 $ - $ 175 $ - Consumer - other - - Consumer - home equity - - With an allowance recorded - SBA non real estate - Consumer - other - - - - - Consumer - home equity - Total SBA non real estate - Consumer - other - - Consumer - home equity - December 31, 2014 Without an allowance recorded SBA non real estate $ - $ - $ - $ - $ - Consumer - other - Consumer - home equity - - With an allowance recorded SBA non real estate - Consumer - other - - - Consumer - home equity - Total SBA non real estate - Consumer - other - - Consumer - home equity - The following tables summarize the Company’s non-accrual loans, loans past due 90 days and still accruing interest and other real estate owned for the periods indicated (the Company had no non-accrual leases at March 31, 2015, March 31, 2014, or December 31, 2014 ) (in thousands): March 31, March 31, December 31, 2015 2014 2014 (restated) Non-accrual loans SBA non real estate $ 1,117 $ 1,333 $ - Consumer Total non-accrual loans Loans past due 90 days or more Total non-performing loans Other real estate owned - - - Total non-performing assets $ 4,513 $ 4,127 $ 2,056 The Company’s loans that were modified as of March 31, 2015 and December 31, 2014 and considered troubled debt restructurings are as follows (dollars in thousands): March 31, 2015 December 31, 2014 Number Pre-modification recorded investment Post-modification recorded investment Number Pre-modification recorded investment Post-modification recorded investment SBA non real estate $ 190 $ 190 $ 197 $ 197 Consumer Total $ 532 $ 532 $ 543 $ 543 The balances below provide information as to how the loans were modified as troubled debt restructurings as of March 31, 2015 and December 31, 2014 (in thousands): March 31, 2015 December 31, 2014 Adjusted interest rate Extended maturity Combined rate and maturity Adjusted interest rate Extended maturity Combined rate and maturity SBA non real estate $ - $ 190 $ - $ - $ 197 $ - Consumer - - - - Total $ - $ 532 $ - $ - $ 543 $ - As of March 31, 2015 loans there were no loans that were restructured within the last 12 months that have subsequently defaulted. As of March 31, 2015 and December 31, 2014, the Company had no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings. There were no loans that were restructured in the last 12 months that have subsequently defaulted. A detail of the changes in the allowance for loan and lease losses by loan category is as follows (in thousands): SBA non real estate SBA commercial mortgage SBA construction Direct lease financing SBLOC Other specialty lending Other consumer loans Unallocated Total March 31, 2015 Beginning balance $ 385 $ 461 $ 114 $ 836 $ 562 $ 66 $ 1,181 $ 33 $ 3,638 Charge-offs - - - - - - Recoveries - - - - - - - Provision (credit) Ending balance $ 893 $ 294 $ 74 $ 1,072 $ 590 $ 1 $ 1,227 $ 92 $ 4,243 Ending balance: Individually evaluated for impairment $ 280 $ - $ - $ - $ - $ - $ 439 $ - $ 719 Ending balance: Collectively evaluated for impairment $ 613 $ 294 $ 74 $ 1,072 $ 590 $ 1 $ 788 $ 92 $ 3,524 Loans: Ending balance $ 62,385 $ 84,430 $ 15,181 $ 220,559 $ 447,649 $ 1,862 $ 30,120 $ 8,715 $ 870,901 Ending balance: Individually evaluated for impairment $ 1,307 $ - $ - $ - $ - $ - $ 2,969 $ - $ 4,276 Ending balance: Collectively evaluated for impairment $ 61,078 $ 84,430 $ 15,181 $ 220,559 $ 447,649 $ 1,862 $ 27,151 $ 8,715 $ 866,625 December 31, 2014 Beginning balance (restated) $ 419 $ 496 $ - $ 311 $ 293 $ 1 $ 2,361 $ - $ 3,881 Charge-offs - - - - Recoveries - - - - - Provision (credit) Ending balance $ 385 $ 461 $ 114 $ 836 $ 562 $ 66 $ 1,181 $ 33 $ 3,638 Ending balance: Individually evaluated for impairment $ 40 $ - $ - $ - $ - $ - $ 271 $ - $ 311 Ending balance: Collectively evaluated for impairment $ 345 $ 461 $ 114 $ 836 $ 562 $ 66 $ 910 $ 33 $ 3,327 Loans: Ending balance $ 62,425 $ 82,317 $ 20,392 $ 194,464 $ 421,862 $ 48,625 $ 36,168 $ 8,340 $ 874,593 Ending balance: Individually evaluated for impairment $ 197 $ - $ - $ - $ - $ - $ 2,253 $ - $ 2,450 Ending balance: Collectively evaluated for impairment $ 62,228 $ 82,317 $ 20,392 $ 194,464 $ 421,862 $ 48,625 $ 33,915 $ 8,340 $ 872,143 March 31, 2014 (restated) Beginning balance (restated) $ 419 $ 496 $ - $ 311 $ 293 $ 1 $ 2,361 $ - $ 3,881 Charge-offs - - - - - - - Recoveries - - - - - - - Provision (credit) Ending balance $ 835 $ 734 $ 41 $ 175 $ 320 $ 58 $ 2,520 $ 366 $ 5,049 Ending balance: Individually evaluated for impairment $ 385 $ - $ - $ - $ - $ - $ 607 $ - $ 992 Ending balance: Collectively evaluated for impairment $ 450 $ 734 $ 41 $ 175 $ 320 $ 58 $ 1,913 $ 366 $ 4,057 Loans: Ending balance $ 53,046 $ 86,600 $ 4,748 $ 181,007 $ 319,854 $ 42,209 $ 47,884 $ 5,399 $ 740,747 Ending balance: Individually evaluated for impairment $ 1,307 $ - $ - $ - $ - $ - $ 2,969 $ - $ 4,276 Ending balance: Collectively evaluated for impairment $ 51,739 $ 86,600 $ 4,748 $ 181,007 $ 319,854 $ 42,209 $ 44,915 $ 5,399 $ 736,471 The Company did no t have loans acquired with deteriorated credit quality at either March 31, 2015 or December 31, 2014. A detail of the Company’s delinquent loans by loan category is as follows (in thousands): 30-59 Days 60-89 Days Greater than Total Total March 31, 2015 past due past due 90 days Non-accrual past due Current loans SBA non real estate $ 52 $ - $ - $ 1,117 $ 1,169 $ 61,216 $ 62,385 SBA commercial mortgage - - - - - SBA construction - - - - - Direct lease financing - SBLOC - - - - - Other specialty lending - - - - - Consumer - other - - - - - Consumer - home equity - Unamortized loan fees and costs - - - - - $ 5,767 $ 1,407 $ 769 $ 3,744 $ 11,687 $ 859,214 $ 870,901 30-59 Days 60-89 Days Greater than Total Total December 31, 2014 past due past due 90 days Non-accrual past due Current loans SBA non real estate $ - $ - $ - $ - $ - $ 62,425 $ 62,425 SBA commercial mortgage - - - - - SBA construction - - - - - Direct lease financing - SBLOC - - - - - Other specialty lending - - - - - Consumer - other - - - Consumer - home equity - - Unamortized loan fees and costs - - - - - $ 5,092 $ 2,289 $ 149 $ 1,907 $ 9,437 $ 865,156 $ 874,593 The Company evaluates its loans under an internal loan risk rating system as a means of identifying problem loans. The following table provides information by credit risk rating indicator for each segment of the loan portfolio excluding loans held for sale at the dates indicated (in thousands): March 31, 2015 Pass Special mention Substandard Doubtful Loss Unrated subject to review * Unrated not subject to review * Total loans SBA non real estate $ 45,020 $ - $ 1,307 $ - $ - $ 1,595 $ 14,463 $ 62,385 SBA commercial mortgage - - - - SBA construction - - - - Direct lease financing - - - SBLOC - - - - Other specialty lending - - - - - Consumer - - - Unamortized loan fees and costs - - - - - - $ 363,682 $ 835 $ 4,774 $ - $ - $ 16,890 $ 484,720 $ 870,901 December 31, 2014 SBA non real estate $ 49,214 $ - $ 197 $ - $ - $ 669 $ 12,345 $ 62,425 SBA commercial mortgage - - - - SBA construction - - - - - Direct lease financing - - - - SBLOC - - - - Other specialty lending - - - - - Consumer - - Unamortized loan fees and costs - - - - - - $ 389,677 $ 346 $ 2,203 $ - $ - $ 59,067 $ 423,300 $ 874,593 * Unrated loans consist of performing loans which did not exhibit any negative characteristics which would require the loan to be evaluated, or fell below the dollar threshold requiring review and were not loans otherwise selected in ongoing portfolio evaluation. The loan portfolio review coverage was approximately 42% at March 31, 2015 and approximately 45% at December 31, 2014. This review is performed by the loan review department, which is independent of the loan departments and reports directly to the audit committee. All classified loans are reviewed by our independent loan review function. Potential problem loans which are identified by either the independent loan review department or line management are also reviewed. L oans are subject to review by their relationship manager and senior loan personnel. As a result of transferring loans into “Discontinued Operations”, management is currently reassessing the review scope for the continuing operations portfolio. |