| Loans and Allowance for Loan Losses | Note 4: Loans and Allowance for Loan
Losses
Categories of loans include:
June 30, 2015 December 31, 2014
Real Estate
One-to four-family $ 42,751 $ 44,316
Home Equity 6,390 6,645
Commercial mortage loans
Commercial real estate 159,942 153,705
Multifamily 63,182 61,204
Land 11,931 10,060
Construction 19,427 21,673
Commercial Non-mortgage 15,053 14,717
Consumer 1,299 1,142
Total loans 319,975 313,462
Less
Net deferred loan fees, premiums and discounts 559 555
Undisbursed portion of loan 10,943 8,454
Allowance for loan losses 9,176 7,976
Net Loans $ 299,297 $ 296,477
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.
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
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.
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 June 30,
2015, December 31, 2014 and June 30, 2014:
Loan Class 1-4 Family Home Commercial Multifamily Land Construction Commerical Non-Mortage Consumer Total
Year to date analysis as of June 30, 2015
Allowance for loan losses:
Balance, beginning of period $ 881 $ 100 $ 3,573 $ 1,391 $ 1,205 $ 539 $ 269 $ 18 $ 7,976
Provision charged to expense 142 12 3 131 77 83 48 4 $ 500
Losses charged off (45 )
—
—
—
—
—
— (1 ) $ (46 )
Recoveries 22
— 715
— 7
—
— 2 $ 746
Balance, end of period $ 1,000 $ 112 $ 4,291 $ 1,522 $ 1,289 $ 622 $ 317 $ 23 $ 9,176
Ending Balance: individually evaluated for impairment
—
— 200 100 850
—
—
— $ 1,150
Ending balance: collectively evaluated for impairment $ 1,000 $ 112 $ 4,091 $ 1,422 $ 439 $ 622 $ 317 $ 23 $ 8,026
Loans:
Ending Balance 42,751 6,390 159,942 63,182 11,931 19,427 15,053 1,299 319,975
Ending Balance: individually evaluated for impairment 1,550
— 13,005 8,058 2,703
— 317
— 25,633
Ending balance: collectively evaluated for impairment 41,201 6,390 146,937 55,124 9,228 19,427 14,736 1,299 294,342
Loan Class 1-4 Family Home Commercial Multifamily Land Construction Commerical Non-Mortage Consumer Total
Quarter to date analysis as of June 30, 2015
Allowance for loan losses:
Balance, beginning of period $ 874 $ 91 $ 3,743 $ 1,301 $ 1,362 $ 617 $ 229 $ 19 $ 8,236
Provision charged to expense 120
21 (128 ) 221 (80 ) 5 88 3 250
Losses charged off
—
—
—
—
—
—
—
—
—
Recoveries 6
— 676
— 7
—
— 1 690
Balance, end of period $ 1,000 $ 112 $
4,291 $ 1,522 $ 1,289 $
622 $
317 $
23 $
9,176
Loan Class 1-4 Family Home Commercial Multifamily Land Construction Commerical Non-Mortage Consumer Total
Year to date analysis as of December 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 (475 ) (151 ) 702 (123 ) (33 ) 1,004 112 (16 ) 1,020
Losses charged off (55 )
—
—
—
— (750 )
— (1 ) (806 )
Recoveries 57
— 10
— 93
—
— 5 165
Balance, end of period $ 881 $ 100 $ 3,573 $ 1,391 $ 1,205 $ 539 $ 269 $ 18 $ 7,976
Ending Balance: individually evaluated for impairment
—
— 200 100 850
—
—
— 1,150
Ending balance: collectively evaluated for impairment $ 881 $ 100 $ 3,373 $ 1,291 $ 355 $ 539 $ 269 $ 18 $ 6,826
Loans:
Ending Balance 44,316 6,645 153,705 61,204 10,060 21,673 14,717 1,142 313,462
Ending Balance: individually evaluated for impairment 1,645 63 8,956 8,192 3,224 5,349 351
— 27,780
Ending balance: collectively evaluated for impairment $ 42,671 $ 6,582 $ 144,749 $ 53,012 $ 6,836 $ 16,324 $ 14,366 $ 1,142 $ 285,682
Loan Class 1-4 Family Home Commercial Multifamily Land Construction Commerical Non-Mortage Consumer Total
Year to date analysis as of June 30, 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 (363 ) (97 ) 311 (181 ) 221 523 96 (15 ) 495
Losses charged off (30 )
—
—
—
—
—
— (1 ) (31 )
Recoveries 26
— 7
— 11
—
— 3 47
Balance, end of period $ 987 $ 154 $ 3,179 $ 1,333 $ 1,377 $ 808 $ 253 $ 17 $ 8,108
Ending Balance: individually evaluated for impairment
—
— 200 100 850 500
—
— 1,650
Ending balance: collectively evaluated for impairment $ 987 $ 154 $ 2,979 $ 1,233 $ 527 $ 308 $ 253 $ 17 $ 6,458
Loans:
Ending Balance 50,397 7,219 147,191 60,248 9,568 23,609 12,801 1,144 312,177
Ending Balance: individually evaluated for impairment 1,449 63 9,779 8,316 3,888 5,349 595
— 29,439
Ending balance: collectively evaluated for impairment $ 48,948 $ 7,156 $ 137,412 $ 51,932 $ 5,680 $ 18,260 $ 12,206 $ 1,144 $ 282,738
Loan Class 1-4 Family Home Commercial Multifamily Land Construction Commerical Non-Mortage Consumer Total
Quarter to date analysis as of June 30, 2014
Allowance for loan losses:
Balance, beginning of period $ 1,006 $ 148 $
3,475 $ 1,338 $ 1,422 $
390 $
126 $
14 $
7,919
Provision charged to expense (5 ) 6 (300 ) (5 ) (49 ) 418 127 3 195
Losses charged off (30 )
—
—
—
—
—
— (1 ) (31 )
Recoveries 16
— 4
— 4
—
— 1 25
Balance, end of period $ 987 $ 154 $ 3,179 $ 1,333 $ 1,377 $ 808 $ 253 $ 17 $ 8,108
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.
The following table presents the credit risk profile of our loan
portfolio based on rating category and payment activity as of
June 30, 2015 and December 31, 2014:
1-4
Family Home
Equity
Commercial Real Estate
Multifamily
2015 2014 2015 2014 2015 2014 2015 2014
Pass $ 39,197 $ 40,253 $ 6,390 $ 6,645 $ 136,685 $ 131,833 $ 49,410 $ 47,308
Pass (Closely Monitored) 2,054 2,446
—
— 9,246 10,446 9,211 9,244
Special Mention 229 413
—
— 1,429 2,383
—
—
Substandard 1,271 1,204
—
— 12,582 9,043 4,561 4,652
Doubtful
—
—
—
—
—
—
—
—
Loss
—
—
—
—
—
—
—
—
$ 42,751 $ 44,316 $ 6,390 $ 6,645 $ 159,942 $ 153,705 $ 63,182 $ 61,204
Land
Construction Mortgage Consumer Total
2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Pass 7,794 5,160 19,427 18,213 14,404 14,023 1,299 1,142 274,606 264,577
Pass (Closely Monitored) 1,900 2,156
—
— 332 343
—
— 22,743 24,635
Special Mention
—
—
—
—
— 19
—
— 1,658 2,815
Substandard 2,237 2,744
— 3,460 317 332
—
— 20,968 21,435
Doubtful
—
—
—
—
—
—
—
—
—
—
Loss
—
—
—
—
—
—
—
—
—
—
$ 11,931 $ 10,060 $ 19,427 $ 21,673 $ 15,053 $ 14,717 $ 1,299 $ 1,142 $ 319,975 $ 313,462
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.
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.
The following table is a summary of our past due and non-accrual
loans as of June 30, 2015 and December 31, 2014:
As of June 30, 2015 30-59 Days 60-89 Days Greater Total Past Current Total Total Total
1-4 Family $ 149 $
— $ 48 $ 197 $ 42,554 $ 42,751 $
— $ 66
Home Equity
—
—
—
— 6,390 6,390
—
—
Commercial Real Estate 3,866 691 181 4,738 155,204 159,942
— 5,241
Multifamily
—
—
—
— 63,182 63,182
—
—
Land
—
— 2,237 2,237 9,694 11,931
— 2,408
Construction
—
—
—
— 19,427 19,427
—
—
Commercial Non-Mortgage
—
—
—
— 15,053 15,053
—
—
Consumer
—
—
—
— 1,299 1,299
—
—
Total $ 4,015 $ 691 $ 2,466 $ 7,172 $ 312,803 $ 319,975 $
— $ 7,715
As of December 31, 2014: 30-59 Days 60-89 Days Greater Total Past Current Total Total Total
1-4 Family $ 334 $ 152 $ 107 $ 593 $ 43,723 $ 44,316 $
— $ 107
Home Equity
—
—
—
— 6,645 6,645
—
—
Commercial Real Estate 818 634 649 2,101 151,604 153,705
— 1,339
Multifamily
—
—
—
— 61,204 61,204
—
—
Land
—
— 2,700 2,700 7,360 10,060
— 2,700
Construction 3,960
—
— 3,960 17,713 21,673
— 3,960
Commercial Non-Mortgage
—
— 19 19 14,698 14,717
— 19
Consumer
—
—
—
— 1,142 1,142
—
—
Total $ 5,112 $ 786 $ 3,475 $ 9,373 $ 304,089 $ 313,462 $
— $ 8,125
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.
The following table presents impaired loans at June 30,
2015:
Recorded Unpaid Specific QTD Average YTD Average QTD Interest YTD Interest
Loans without a specific valuation allowance :
1-4 Family $ 1,373 $ 1,562 $
— $ 1,478 $ 1,474 $ 16 $ 34
Home Equity
—
—
— 30 41
—
—
Commercial real estate 10,459 12,627
— 10,855 11,029 51 117
Multi Family 6,719 7,533
— 6,750 6,782 82 162
Land 466 740
— 488 326 7 14
Construction
— 2
—
— 1,783
—
—
Commercial Non-Mortgage
—
—
—
— 6
—
—
Consumer
—
—
—
—
—
—
—
Loans with a specific valuation allowance :
1-4 Family $ 177 $ 177 $
— $ 177 $ 177 $ 2 $ 6
Home Equity
—
—
—
—
—
—
—
Commercial real estate 2,546 2,546 200 2,567 2,687 43 91
Multi Family 1,339 1,339 100 1,341 1,342 20 40
Land 2,237 3,937 850 2,323 2,448
—
—
Construction
—
—
—
—
—
—
—
Commercial Non-Mortgage 317 317
— 321 324 6 11
Consumer
—
—
—
—
—
—
—
Totals
1-4 Family $ 1,550 $ 1,739 $
— $ 1,655 $ 1,651 $ 18 $ 40
Home Equity
—
—
— 30 41
—
—
Commercial real estate 13,005 15,173 200 13,422 13,716 94 208
Multi Family 8,058 8,872 100 8,091 8,124 102 202
Land 2,703 4,677 850 2,811 2,774 7 14
Construction
— 2
—
— 1,783
—
—
Commercial Non-Mortgage 317 317
— 321 330 6 11
Consumer
—
—
—
—
—
—
—
Total $ 25,633 $ 30,780 $ 1,150 $ 26,330 $ 28,419 $ 227 $ 475
The following table presents impaired loans at December 31,
2014:
Recorded Unpaid Specific YTD Average YTD
Loans without a specific valuation allowance
1-4 Family $ 1,467 $ 1,643 $
— $ 1,472 $ 77
Home Equity 63 63
— 65 2
Commercial Real Estate 6,029 8,309
— 6,680 323
Multifamily 6,847 7,661
— 6,941 392
Land 524 805
— 504 4
Construction 5,349 4,712
— 3,664 57
Commercial Non-Mortgage 19 19
— 137 5
Consumer
—
—
—
—
—
Loans with a specific valuation allowance
1-4 Family $ 178 $ 178 $
— $ 180 $ 8
Home Equity
—
—
—
—
—
Commercial Real Estate 2,927 2,927 200 3,000 200
Multifamily 1,345 1,345 100 1,355 83
Land 2,700 4,060 850 3,044 1
Construction
—
—
— 2,674 107
Commercial Non-Mortgage 332 332
— 343 18
Consumer
—
—
—
—
—
Totals
1-4 Family $ 1,645 $ 1,821 $
— $ 1,652 $ 85
Home Equity 63 63
— 65 2
Commercial Real Estate 8,956 11,236 200 9,680 523
Multifamily 8,192 9,006 100 8,296 475
Land 3,224 4,865 850 3,548 5
Construction 5,349 4,712
— 6,338 164
Commercial Non-Mortgage 351 351
— 480 23
Consumer
—
—
—
—
—
Total $ 27,780 $ 32,054 $ 1,150 $ 30,059 $ 1,277
The following table presents impaired loans at June 30,
2014:
Recorded Unpaid Specific QTD YTD QTD YTD
Loans without a specific valuation allowance
1-4 Family $ 1,269 $ 1,579 $
— $ 1,472 $ 1,780 $ 16 $ 37
Home Equity 63 63
— 64 65 1 1
Commercial Real Estate 6,741 9,180
— 7,036 7,607 110 175
Multifamily 6,971 7,786
— 7,002 7,034 123 205
Land 696 1,070
— 701 912
— 1
Construction
— 1
—
—
—
—
—
Commercial Non-Mortgage 251 251
— 254 244 2 5
Consumer
—
—
—
—
—
—
—
Loans with a specific valuation allowance
1-4 Family 180 180
— 180 181 3 5
Home Equity
—
—
—
—
—
—
—
Commercial Real Estate 3,038 3,054 200 3,058 3,085 38 101
Multifamily 1,345 1,345 100 1,348 1,353 20 41
Land 3,192 4,531 850 3,290 3,342 1 1
Construction 5,349 5,349 500 2,674 1,783 64 64
Commercial Non-Mortgage 344 344
— 350 358 4 9
Consumer
—
—
—
—
—
—
—
Total
1-4 Family $ 1,449 $ 1,759 $
— $ 1,652 $ 1,961 $ 19 $ 42
Home Equity 63 63
— 64 65 1 1
Commercial Real Estate 9,779 12,234 200 10,094 10,692 148 276
Multifamily 8,316 9,131 100 8,350 8,387 143 246
Land 3,888 5,601 850 3,991 4,254 1 2
Construction 5,349 5,350 500 2,674 1,783 64 64
Commercial Non-Mortgage 595 595
— 604 602 6 14
Consumer
—
—
—
—
—
—
—
Total $ 29,439 $ 34,734 $ 1,650 $ 27,429 $ 27,744 $ 382 $ 645
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.
The following table summarizes the loans that were restructured as
TDRs during the three and six months ended June 30, 2015:
Three Months Ended Six months ended June 30, 2015
Count Balance Balance Count Balance Balance
(Dollars in
thousands)
Commercial real estate 2 745 745 2 745 745
Total loans 2 $ 745 $ 745 2 $ 745 $ 745
Both of the commercial real estate TDRs in 2015 were modified with
rate reductions and term extensions.
We had no TDRs that had payment defaults during the six months
ended June 2015. 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.
The following table summarizes the loans that were restructured as
TDRs during the three and six months ended June 30, 2014:
Three Months
Ended Six months
ended
June 30, 2014 June 30, 2014
Count Balance Balance Count Balance Balance
(Dollars in
thousands)
Commercial real estate 1 900 900 1 900 900
Total loans 1 $ 900 $ 900 1 $ 900 $ 900
The commercial real estate TDR in 2014 was modified with a payment
restructuring. |
