Loans and Allowance for Loan Losses | 3 Months Ended |
Mar. 31, 2014 |
Loans and Allowance for Loan Losses | ' |
Note 4: Loans and Allowance for Loan Losses |
Categories of loans include: |
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| | March 31, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
One-to four-family | | $ | 51,159 | | | $ | 49,726 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Home equity | | | 6,997 | | | | 7,912 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial mortgage loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 145,645 | | | | 126,154 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 60,129 | | | | 62,790 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Land | | | 10,227 | | | | 9,734 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 22,737 | | | | 8,669 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-mortgage | | | 6,656 | | | | 7,226 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | 1,076 | | | | 1,167 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total loans | | | 304,626 | | | | 273,378 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred loan fees, premiums and discounts | | | 554 | | | | 467 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Undisbursed portion of loans | | | 19,188 | | | | 5,933 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | 7,919 | | | | 7,597 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Net loans | | $ | 276,965 | | | $ | 259,381 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The risk characteristics of each loan portfolio segment are as follows: |
1-4 Family, Home Equity, and Consumer |
With respect to residential loans that are secured by one-to four-family residences and are primarily owner-occupied, we generally establish a maximum loan-to-value ratio and require PMI if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to four-family residences, and consumer loans are typically secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. |
Home equity loans secured by second mortgages have greater risk than one- to four-family residential mortgage loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans, decreases in real estate values could adversely affect the value of property used as collateral for our loans. |
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Consumer and other loans generally have greater risk compared to longer-term loans secured by improved, owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. |
Commercial real estate and multifamily |
Commercial real estate and multifamily loans generally have greater credit risk than the owner-occupied one- to four-family residential mortgage loans that we originate for retention in our loan portfolio. Repayment of these loans generally depends, in large part, on sufficient income from the property securing the loan or the borrower’s business to cover operating expenses and debt service. These types of loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our commercial real estate and multifamily loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination. |
Land |
Land loans generally have greater credit risk than the owner-occupied one-to four-family residential mortgage loans that we originate for retention in our portfolio. Repayment of these loans generally depends, in large part, on the sale of the land. The sale of land can either take place when the land is undeveloped, or developed. Generally, other cash flow sources of the borrower are utilized to make additional payments on land loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our land loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination. |
Construction |
Construction loans include those for one- to four-family residential properties and commercial properties, including multifamily loans and commercial “mixed-use” buildings and homes built by developers on speculation. With respect to construction loans for one- to four-family residential properties and which are primarily owner-occupied, we generally establish a maximum loan-to-value ratio and require PMI if that ratio is exceeded. These are generally “interest-only” loans during the construction period which typically does not exceed nine months. Construction loans for commercial real estate are made in accordance with a schedule reflecting the cost of construction, and are generally limited to a 75% loan-to-completed appraised value ratio. For all construction loans, we generally require that a commitment for permanent financing be in place prior to closing the construction loan |
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Repayment of one-to four-family residential property loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment of commercial property loans and homes built by developers on speculation is normally expected from the property’s eventual rental income, income from the borrower’s operations, the personal resources of the guarantor, or the sale of the subject property. Generally, before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or state-licensed appraiser. We generally review and inspect properties before disbursement of funds during the term of the construction loan. |
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. |
Commercial non-mortgage |
Commercial non-mortgage loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial non-mortgage loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. |
As a result, the availability of funds for the repayment of commercial non-mortgage loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. In determining the appropriate level of allowance for loan loss, we analyze various components of our portfolio. The following components are analyzed: all substandard loans on an individual basis; all loans that are designated special mention or closely monitored; loans not classified according to purpose or collateral type; and overdrawn deposit account balances. |
We also factor in historical loss experience and qualitative considerations, including trends in charge offs and recoveries; trends in delinquencies and impaired/classified loans; effects of credit concentrations; changes in underwriting standards and loan review system; experience in lending staff; current industry conditions; and current market conditions. |
In instances where risk and loss exposure is clearly identified with a particular asset, the asset or a portion of the asset will be charged off. |
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The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2014, December 31, 2013 and March 31, 2013: |
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Loan Class | | 4-Jan | | | Home | | | Commercial | | | Multifamily | | | Land | | | Construction | | | Commercial | | | Consumer | | | Total | | | | | |
Family | Equity | Real Estate | Non- | | | | |
| | | Mortgage | | | | |
Quarter to date analysis as of March 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 1,354 | | | $ | 251 | | | $ | 2,861 | | | $ | 1,514 | | | $ | 1,145 | | | $ | 285 | | | $ | 157 | | | $ | 30 | | | $ | 7,597 | | | | | |
Provision charged to expense | | | (358 | ) | | | (103 | ) | | | 611 | | | | (176 | ) | | | 270 | | | | 105 | | | | (31 | ) | | | (18 | ) | | | 300 | | | | | |
Losses charged off | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
Recoveries | | | 10 | | | | — | | | | 3 | | | | — | | | | 7 | | | | — | | | | — | | | | 2 | | | | 22 | | | | | |
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Balance, end of period | | $ | 1,006 | | | $ | 148 | | | $ | 3,475 | | | $ | 1,338 | | | $ | 1,422 | | | $ | 390 | | | $ | 126 | | | $ | 14 | | | $ | 7,919 | | | | | |
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Ending Balance: individually evaluated for impairment | | $ | — | | | $ | — | | | $ | 345 | | | $ | 100 | | | $ | 850 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,295 | | | | | |
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Ending balance: collectively evaluated for impairment | | $ | 1,006 | | | $ | 148 | | | $ | 3,130 | | | $ | 1,238 | | | $ | 572 | | | $ | 390 | | | $ | 126 | | | $ | 14 | | | $ | 6,624 | | | | | |
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Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 51,159 | | | $ | 6,997 | | | $ | 145,645 | | | $ | 60,129 | | | $ | 10,227 | | | $ | 22,737 | | | $ | 6,656 | | | $ | 1,076 | | | $ | 304,626 | | | | | |
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Ending Balance: individually evaluated for impairment | | $ | 1,695 | | | $ | 64 | | | $ | 10,161 | | | $ | 8,384 | | | $ | 4,094 | | | $ | — | | | $ | 612 | | | $ | — | | | $ | 25,010 | | | | | |
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Ending Balance: collectively evaluated for impairment | | $ | 49,464 | | | $ | 6,933 | | | $ | 135,484 | | | $ | 51,745 | | | $ | 6,133 | | | $ | 22,737 | | | $ | 6,044 | | | $ | 1,076 | | | $ | 279,616 | | | | | |
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Loan Class | | 4-Jan | | | Home | | | Commercial | | | Multifamily | | | Land | | | Construction | | | Commercial | | | Consumer | | | Total | | | | | |
Family | Equity | Real Estate | Non- | | | | |
| | | Mortgage | | | | |
Year to date analysis as of December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of year | | $ | 1,433 | | | $ | 266 | | | $ | 2,663 | | | $ | 1,497 | | | $ | 312 | | | $ | 302 | | | $ | 166 | | | $ | 32 | | | $ | 6,671 | | | | | |
Provision charged to expense | | | 116 | | | | (16 | ) | | | 98 | | | | 17 | | | | 651 | | | | (17 | ) | | | (14 | ) | | | (5 | ) | | | 830 | | | | | |
Losses charged off | | | (210 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2 | ) | | | (212 | ) | | | | |
Recoveries | | | 15 | | | | 1 | | | | 100 | | | | — | | | | 182 | | | | — | | | | 5 | | | | 5 | | | | 308 | | | | | |
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Balance, end of year | | $ | 1,354 | | | $ | 251 | | | $ | 2,861 | | | $ | 1,514 | | | $ | 1,145 | | | $ | 285 | | | $ | 157 | | | $ | 30 | | | $ | 7,597 | | | | | |
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Ending Balance: individually evaluated for impairment | | $ | — | | | $ | — | | | $ | 345 | | | $ | 100 | | | $ | 850 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,295 | | | | | |
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Ending balance: collectively evaluated for impairment | | $ | 1,354 | | | $ | 251 | | | $ | 2,516 | | | $ | 1,414 | | | $ | 295 | | | $ | 285 | | | $ | 157 | | | $ | 30 | | | $ | 6,302 | | | | | |
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Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 49,726 | | | $ | 7,912 | | | $ | 126,154 | | | $ | 62,790 | | | $ | 9,734 | | | $ | 8,669 | | | $ | 7,226 | | | $ | 1,167 | | | $ | 273,378 | | | | | |
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Ending Balance: individually evaluated for impairment | | $ | 2,494 | | | $ | — | | | $ | 11,067 | | | $ | 8,462 | | | $ | 4,162 | | | | — | | | $ | 600 | | | $ | — | | | $ | 26,785 | | | | | |
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Ending Balance: collectively evaluated for impairment | | $ | 47,232 | | | $ | 7,912 | | | $ | 115,087 | | | $ | 54,328 | | | $ | 5,572 | | | $ | 8,669 | | | $ | 6,626 | | | $ | 1,167 | | | $ | 246,593 | | | | | |
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Loan Class | | 4-Jan | | | Home | | | Commercial | | | Multifamily | | | Land | | | Construction | | | Commercial | | | Consumer | | | Total | | | | | |
Family | Equity | Real Estate | Non- | | | | |
| | | Mortgage | | | | |
Quarter to date analysis as of March 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of year | | $ | 1,433 | | | $ | 266 | | | $ | 2,663 | | | $ | 1,497 | | | $ | 312 | | | $ | 302 | | | $ | 166 | | | $ | 32 | | | $ | 6,671 | | | | | |
Provision charged to expense | | | 21 | | | | 26 | | | | 193 | | | | 158 | | | | (47 | ) | | | 49 | | | | (73 | ) | | | (2 | ) | | | 325 | | | | | |
Losses charged off | | | (12 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12 | ) | | | | |
Recoveries | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 5 | | | | | |
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Balance, end of year | | $ | 1,445 | | | $ | 292 | | | $ | 2,856 | | | $ | 1,655 | | | $ | 265 | | | $ | 351 | | | $ | 93 | | | $ | 32 | | | $ | 6,989 | | | | | |
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Ending Balance: individually evaluated for impairment | | $ | 9 | | | $ | — | | | $ | 228 | | | $ | 48 | | | $ | 100 | | | $ | — | | | $ | 15 | | | $ | — | | | $ | 400 | | | | | |
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Ending balance: collectively evaluated for impairment | | $ | 1,436 | | | $ | 292 | | | $ | 2,628 | | | $ | 1,607 | | | $ | 165 | | | $ | 351 | | | $ | 78 | | | $ | 32 | | | $ | 6,589 | | | | | |
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Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 54,953 | | | $ | 11,129 | | | $ | 108,649 | | | $ | 62,945 | | | $ | 10,065 | | | $ | 13,369 | | | $ | 3,541 | | | $ | 1,195 | | | $ | 265,846 | | | | | |
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Ending Balance: individually evaluated for impairment | | $ | 2,809 | | | $ | — | | | $ | 10,955 | | | $ | 9,449 | | | $ | 4,693 | | | $ | 80 | | | $ | 837 | | | $ | — | | | $ | 28,823 | | | | | |
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Ending Balance: collectively evaluated for impairment | | $ | 52,144 | | | $ | 11,129 | | | $ | 97,694 | | | $ | 54,296 | | | $ | 5,372 | | | $ | 13,289 | | | $ | 2,704 | | | $ | 1,195 | | | $ | 237,823 | | | | | |
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Consistent with regulatory guidance, charge offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. Our policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined. |
For all loan portfolio segments except one-to-four family residential loans and consumer loans, we promptly charge off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral. |
We charge off one-to-four family residential and consumer loans, or portions thereof, when we reasonably determine the amount of the loss. We adhere to timeframes established by applicable regulatory guidance which provides for the charge off of one-to-four family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which we can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off. |
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The following table presents the credit risk profile of our loan portfolio based on rating category and payment activity as of March 31, 2014 and December 31, 2013: |
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| | 1-4 Family | | | Home Equity | | | Commercial Real | | | Multifamily | | | | | | | | | |
Estate | | | | | | | | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | | | | | | | |
Pass | | $ | 47,690 | | | $ | 45,735 | | | $ | 6,997 | | | $ | 7,806 | | | $ | 127,673 | | | $ | 107,825 | | | $ | 46,419 | | | $ | 48,808 | | | | | | | | | |
Pass (Closely Monitored) | | | 1,706 | | | | 1,827 | | | | — | | | | 106 | | | | 4,203 | | | | 4,081 | | | | 8,947 | | | | 9,170 | | | | | | | | | |
Special Mention | | | 721 | | | | 818 | | | | — | | | | — | | | | 4,677 | | | | 4,992 | | | | — | | | | — | | | | | | | | | |
Substandard | | | 1,042 | | | | 1,346 | | | | — | | | | — | | | | 9,092 | | | | 9,256 | | | | 4,763 | | | | 4,812 | | | | | | | | | |
Doubtful | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | |
Loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | |
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| | $ | 51,159 | | | $ | 49,726 | | | $ | 6,997 | | | $ | 7,912 | | | $ | 145,645 | | | $ | 126,154 | | | $ | 60,129 | | | $ | 62,790 | | | | | | | | | |
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| | Land | | | Construction | | | Commercial | | | Consumer | | | Total | |
Non-Mortgage |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Pass | | $ | 4,501 | | | $ | 3,742 | | | $ | 22,737 | | | $ | 8,669 | | | $ | 5,903 | | | $ | 6,540 | | | $ | 1,076 | | | $ | 1,167 | | | $ | 262,996 | | | $ | 230,292 | |
Pass (Closely Monitored) | | | 1,675 | | | | 1,830 | | | | — | | | | — | | | | 141 | | | | 55 | | | | — | | | | — | | | | 16,672 | | | | 17,069 | |
Special Mention | | | — | | | | 43 | | | | — | | | | — | | | | 32 | | | | 36 | | | | — | | | | — | | | | 5,430 | | | | 5,889 | |
Substandard | | | 4,051 | | | | 4,119 | | | | — | | | | — | | | | 580 | | | | 595 | | | | — | | | | — | | | | 19,528 | | | | 20,128 | |
Doubtful | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 10,227 | | | $ | 9,734 | | | $ | 22,737 | | | $ | 8,669 | | | $ | 6,656 | | | $ | 7,226 | | | $ | 1,076 | | | $ | 1,167 | | | $ | 304,626 | | | $ | 273,378 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis is performed during the loan approval process and is updated as circumstances warrant. |
The Pass asset quality rating encompasses assets that have performed as expected. These assets generally do not have delinquency or servicing issues. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage. |
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The Closely Monitored asset quality rating encompasses assets that have been brought to the attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets. This grade includes loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile. |
The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined. |
The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness(es) based upon objective evidence; assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected; or the possibility that liquidation will not be timely. Loans categorized in this grade possess a well defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended. |
The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. |
The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of the Bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be realized in the future. |
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The following table is a summary of our past due and non-accrual loans as of March 31, 2014 and December 31, 2013: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 30-59 | | | 60-89 Days | | | Greater | | | Total | | | Current | | | Total | | | Total | | | Total | | | | | | | | | |
Days Past | Past Due | than 90 | Past | Loans | Loans>90 | Nonaccrual | | | | | | | | |
Due | | Days | Due | Receivable | Days & | | | | | | | | | |
| | | | | Accruing | | | | | | | | | |
1-4 Family | | $ | 242 | | | $ | — | | | $ | — | | | $ | 242 | | | $ | 50,917 | | | $ | 51,159 | | | $ | — | | | $ | — | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | 6,997 | | | | 6,997 | | | | — | | | | — | | | | | | | | | |
Commercial Real Estate | | | — | | | | — | | | | — | | | | — | | | | 145,645 | | | | 145,645 | | | | — | | | | 713 | | | | | | | | | |
Multifamily | | | — | | | | — | | | | — | | | | — | | | | 60,129 | | | | 60,129 | | | | — | | | | — | | | | | | | | | |
Land | | | 50 | | | | — | | | | 4,023 | | | | 4,073 | | | | 6,154 | | | | 10,227 | | | | — | | | | 4,017 | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | 22,737 | | | | 22,737 | | | | — | | | | — | | | | | | | | | |
Commercial Non-Mortgage | | | — | | | | — | | | | 32 | | | | 32 | | | | 6,624 | | | | 6,656 | | | | — | | | | 143 | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | 1,076 | | | | 1,076 | | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 292 | | | $ | — | | | $ | 4,055 | | | $ | 4,347 | | | $ | 300,279 | | | $ | 304,626 | | | $ | — | | | $ | 4,873 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2013: | | 30-59 | | | 60-89 Days | | | Greater | | | Total | | | Current | | | Total | | | Total | | | Total | | | | | | | | | |
Days | Past Due | than 90 | Past | Loans | Loans>90 | Nonaccrual | | | | | | | | |
Past Due | | Days | Due | Receivable | Days & | | | | | | | | | |
| | | | | Accruing | | | | | | | | | |
1-4 Family | | $ | 217 | | | $ | — | | | $ | 254 | | | $ | 471 | | | $ | 49,255 | | | $ | 49,726 | | | $ | — | | | $ | 254 | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | 7,912 | | | | 7,912 | | | | — | | | | — | | | | | | | | | |
Commercial Real Estate | | | 716 | | | | 667 | | | | 49 | | | | 1,432 | | | | 124,722 | | | | 126,154 | | | | — | | | | 779 | | | | | | | | | |
Multifamily | | | — | | | | — | | | | 1,363 | | | | 1,363 | | | | 61,427 | | | | 62,790 | | | | 1,363 | | | | — | | | | | | | | | |
Land | | | — | | | | — | | | | 4,068 | | | | 4,068 | | | | 5,666 | | | | 9,734 | | | | 27 | | | | 4,041 | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | 8,669 | | | | 8,669 | | | | — | | | | — | | | | | | | | | |
Commercial Non-Mortgage | | | — | | | | — | | | | 36 | | | | 36 | | | | 7,190 | | | | 7,226 | | | | — | | | | 157 | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | 1,167 | | | | 1,167 | | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 933 | | | $ | 667 | | | $ | 5,770 | | | $ | 7,370 | | | $ | 266,008 | | | $ | 273,378 | | | $ | 1,390 | | | $ | 5,231 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Nonaccrual Loan and Past Due Loans. The accrual of interest is discontinued on all loan classes at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. |
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. We generally require a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. |
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable we will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made. |
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The following table presents impaired loans at March 31, 2014: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded | | | Unpaid | | | Specific | | | QTD | | | QTD | | | | | | | | | | | | | | | | | | | | | |
Balance | Principal | Allowance | Average | Interest | | | | | | | | | | | | | | | | | | | | |
| Balance | | Balance | Income | | | | | | | | | | | | | | | | | | | | |
Loans without a specific valuation allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | $ | 1,514 | | | $ | 1,651 | | | $ | — | | | $ | 1,733 | | | $ | 22 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | 64 | | | | 64 | | | | — | | | | 64 | | | | 1 | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 6,226 | | | | 8,255 | | | | — | | | | 6,652 | | | | 65 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 7,033 | | | | 7,847 | | | | — | | | | 7,066 | | | | 81 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 707 | | | | 1,645 | | | | — | | | | 711 | | | | 1 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 257 | | | | 257 | | | | — | | | | 242 | | | | 3 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Loans with a specific valuation allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | | 181 | | | | 181 | | | | — | | | | 181 | | | | 3 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 3,935 | | | | 3,946 | | | | 345 | | | | 3,962 | | | | 63 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 1,351 | | | | 1,351 | | | | 100 | | | | 1,357 | | | | 20 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 3,387 | | | | 4,704 | | | | 850 | | | | 3,417 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 355 | | | | 355 | | | | — | | | | 365 | | | | 4 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | $ | 1,695 | | | $ | 1,832 | | | $ | — | | | $ | 1,914 | | | $ | 25 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | 64 | | | | 64 | | | | — | | | | 64 | | | | 1 | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 10,161 | | | | 12,201 | | | | 345 | | | | 10,614 | | | | 128 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 8,384 | | | | 9,198 | | | | 100 | | | | 8,423 | | | | 101 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 4,094 | | | | 6,349 | | | | 850 | | | | 4,128 | | | | 1 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 612 | | | | 612 | | | | — | | | | 607 | | | | 7 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 25,010 | | | $ | 30,258 | | | $ | 1,295 | | | $ | 25,750 | | | $ | 263 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table presents impaired loans at December 31, 2013: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded | | | Unpaid | | | Specific | | | YTD Average | | | YTD | | | | | | | | | | | | | | | | | | | | | |
Balance | Principal | Allowance | Balance | Interest | | | | | | | | | | | | | | | | | | | | |
| Balance | | | Income | | | | | | | | | | | | | | | | | | | | |
Loans without a specific valuation allowance | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | $ | 2,494 | | | $ | 2,712 | | | $ | — | | | $ | 2,668 | | | $ | 225 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 7,128 | | | | 9,152 | | | | — | | | | 7,630 | | | | 315 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 7,099 | | | | 7,914 | | | | — | | | | 7,325 | | | | 409 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 742 | | | | 1,672 | | | | — | | | | 913 | | | | 48 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 600 | | | | 600 | | | | — | | | | 726 | | | | 30 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Loans with a specific valuation allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 3,939 | | | | 3,939 | | | | 345 | | | | 2,843 | | | | 218 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 1,363 | | | | 1,363 | | | | 100 | | | | 1,100 | | | | 33 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 3,420 | | | | 4,730 | | | | 850 | | | | 3,641 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Totals | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | $ | 2,494 | | | $ | 2,712 | | | $ | — | | | $ | 2,668 | | | $ | 225 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 11,067 | | | | 13,091 | | | | 345 | | | | 10,473 | | | | 533 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 8,462 | | | | 9,277 | | | | 100 | | | | 8,425 | | | | 442 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 4,162 | | | | 6,402 | | | | 850 | | | | 4,554 | | | | 48 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 600 | | | | 600 | | | | — | | | | 726 | | | | 30 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 26,785 | | | $ | 32,082 | | | $ | 1,295 | | | $ | 26,850 | | | $ | 1,278 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table presents impaired loans at March 31, 2013: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded | | | Unpaid | | | Specific | | | QTD | | | QTD | | | | | | | | | | | | | | | | | | | | | |
Balance | Principal | Allowance | Average | Interest | | | | | | | | | | | | | | | | | | | | |
| Balance | | Balance | Income | | | | | | | | | | | | | | | | | | | | |
Loans without a specific valuation allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | $ | 2,629 | | | $ | 2,838 | | | $ | — | | | $ | 2,823 | | | $ | 130 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 6,822 | | | | 9,065 | | | | — | | | | 6,912 | | | | 65 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 8,609 | | | | 9,423 | | | | — | | | | 9,615 | | | | 88 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 1,866 | | | | 3,156 | | | | — | | | | 5,873 | | | | 83 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 80 | | | | 82 | | | | — | | | | 28 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 277 | | | | 372 | | | | — | | | | 277 | | | | 3 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Loans with a specific valuation allowance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | | 180 | | | | 181 | | | | 9 | | | | 182 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 4,133 | | | | 4,133 | | | | 228 | | | | 3,766 | | | | 20 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 840 | | | | 840 | | | | 48 | | | | 843 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Land | | | 2,827 | | | | 4,724 | | | | 100 | | | | 1,947 | | | | 50 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 560 | | | | 559 | | | | 15 | | | | 560 | | | | 6 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1-4 Family | | $ | 2,809 | | | $ | 3,019 | | | $ | 9 | | | $ | 3,005 | | | $ | 130 | | | | | | | | | | | | | | | | | | | | | |
Home Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | 10,955 | | | | 13,198 | | | | 228 | | | | 10,678 | | | | 85 | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | 9,449 | | | | 10,263 | | | | 48 | | | | 10,458 | | | | 88 | | | | | | | | | | | | | | | | | | | | | |
Land | | | 4,693 | | | | 7,880 | | | | 100 | | | | 7,820 | | | | 133 | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 80 | | | | 82 | | | | — | | | | 28 | | | | — | | | | | | | | | | | | | | | | | | | | | |
Commercial Non-Mortgage | | | 837 | | | | 931 | | | | 15 | | | | 837 | | | | 9 | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 28,823 | | | $ | 35,373 | | | $ | 400 | | | $ | 32,826 | | | $ | 445 | | | | | | | | | | | | | | | | | | | | | |
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Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assumed, in which case interest is recognized on a cash basis and is reasonable compared to interest income noted above. |
Troubled Debt Restructuring (TDR) |
We may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that we would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring. We may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. |
We identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future. |
For one-to-four family residential and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure. There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief. |
When considering a loan restructure, management will determine if: (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution. |
When a loan is restructured, the new terms often require a reduced monthly debt service payment. No TDRs that were on non-accrual status at the time the concessions were granted have been returned to accrual status. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt. If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance with the new loan terms. To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR. |
For retail loans, an analysis of the individual’s ability to service the new required payments is performed. If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance to the new loan terms. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status. Retail TDRs remain on nonaccrual status until sufficient payments have been made to bring the past due principal and interest current and/or after six months of performance to the new loan terms at which point the loan could be transferred to accrual status. |
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There were no loans that were restructured as TDRs during the three months ended March 31, 2014. |
The following table summarizes the loans that were restructured as TDRs during the three months ended March 31, 2013: |
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| | Three months ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Balance | | | Balance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | prior to | | | after | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Count | | | TDR | | | TDR | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 2 | | | | 139 | | | | 145 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total loans | | | 2 | | | $ | 139 | | | $ | 145 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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We had no TDRs that had payment defaults during the three months ended March 2014 and 2013. Default occurs when a TDR is 90 days or more past due, transferred to nonaccrual status, or transferred to other real estate owned within twelve months of restructuring. |
Management monitors the TDRs based on the type of modification or concession granted to the borrower. These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions. Management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal. Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure. |