Loans | NOTE 3 – LOANS Loans at June 30, 2017 and December 31, 2016 were as follows (in thousands): June 30, December 31, 2017 2016 Real estate: One to four family $ 174,223 $ 177,801 Multi-family 7,391 6,823 Commercial real estate 80,936 83,169 Construction and land 11,458 11,019 274,008 278,812 Commercial and industrial 36,829 38,747 Consumer Home equity loans and lines of credit 10,403 10,655 Motor vehicle 10,414 10,624 Other 7,796 7,877 28,613 29,156 Total 339,450 346,715 Less: Net deferred loan fees 452 445 Allowance for loan losses 2,687 2,349 $ 336,311 $ 343,921 The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of June 30, 2017 and December 31, 2016. Accrued interest receivable and net deferred loan fees are not considered significant and therefore are not included in the loan balances presented in the table below (in thousands): June 30, 2017 Allowance for Loan Losses Loan Balances Individually Purchased Collectively Individually Purchased Collectively Evaluated for Credit-Impaired Evaluated for Evaluated for Credit-Impaired Evaluated for Loan Segment Impairment Loans Impairment Total Impairment Loans Impairment Total Real estate $ 321 $ - $ 1,923 $ 2,244 $ 6,154 $ 1,675 $ 266,179 $ 274,008 Commercial and industrial 6 - 227 $ 233 29 - 36,800 36,829 Consumer - - 210 $ 210 35 - 28,578 28,613 Unallocated - - - - - - - - Total $ 327 $ - $ 2,360 $ 2,687 $ 6,218 $ 1,675 $ 331,557 $ 339,450 December 31, 2016 Allowance for Loan Losses Loan Balances Individually Purchased Collectively Individually Purchased Collectively Evaluated for Credit-Impaired Evaluated for Evaluated for Credit-Impaired Evaluated for Loan Segment Impairment Loans Impairment Total Impairment Loans Impairment Total Real estate $ 23 $ - $ 1,923 $ 1,946 $ 4,844 $ 1,871 $ 272,097 $ 278,812 Commercial and industrial 7 - 211 218 89 - 38,658 38,747 Consumer - - 185 185 40 1 29,115 29,156 Unallocated - - - - - - - - Total $ 30 $ - $ 2,319 $ 2,349 $ 4,973 $ 1,872 $ 339,870 $ 346,715 The following table presents information related to impaired loans by class of loans as of June 30, 2017 and December 31, 2016 (in thousands): June 30, 2017 December 31, 2016 Allowance Allowance Unpaid for Loan Unpaid for Loan Principal Recorded Losses Principal Recorded Losses Balance Investment Allocated Balance Investment Allocated With no related allowance recorded: Real Estate: One to four family $ 670 $ 613 $ - $ 883 $ 883 $ - Multi-family - - - - - - Commercial real estate 3,518 3,378 - 3,780 3,726 - Construction and land 187 187 - 193 193 - Commercial and industrial 23 23 - 270 82 - Consumer: Home equity and lines of credit 35 35 - 40 40 - Motor vehicle - - - - - - Other - - - - - - Subtotal $ 4,433 $ 4,236 $ - $ 5,166 $ 4,924 $ - With an allowance recorded: Real Estate: One to four family $ 2,079 $ 1,976 $ 321 $ 42 $ 42 $ 23 Multi-family - - - - - - Commercial real estate - - - - - - Construction and land - - - - - - Commercial and industrial 6 6 6 7 7 7 Consumer: Home equity and lines of credit - - - - - - Motor vehicle - - - - - - Other - - - - - - Subtotal 2,085 1,982 327 49 49 30 Total $ 6,518 $ 6,218 $ 327 $ 5,215 $ 4,973 $ 30 The recorded investment in loans excludes accrued interest receivable and loan origination fees, net, due to immateriality. For purposes of this disclosure, the unpaid balance is not reduced for partial charge-offs. The following tables present the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three and six months ended June 30, 2017 and 2016 (in thousands): Three months ended June 30, 2017 Three months ended June 30, 2016 Average Interest Cash Basis Average Interest Cash Basis Recorded Income Interest Recorded Income Interest Investment Recognized Recognized Investment Recognized Recognized Real Estate: One to four family $ 2,101 $ 1 $ 1 $ 577 $ 2 $ - Multi-family - - - - - - Commercial real estate 3,352 29 29 444 - - Construction and land 153 2 2 - - - Commercial and industrial 124 - - 130 - - Consumer: Home equity and lines of credit 34 - - - - - Motor vehicle - - - - - - Other - - - - - - Total $ 5,764 $ 32 $ 32 $ 1,151 $ 2 $ - Six months ended June 30, 2017 Six months ended June 30, 2016 Average Interest Cash Basis Average Interest Cash Basis Recorded Income Interest Recorded Income Interest Investment Recognized Recognized Investment Recognized Recognized Real Estate: One to four family $ 1,498 $ 15 $ 15 $ 745 $ 4 $ - Multi-family - - - - - - Commercial real estate 2,868 70 65 446 - - Construction and land 107 4 3 - - - Commercial and industrial 229 - - 146 - - Consumer: Home equity and lines of credit 31 - - 12 - - Motor vehicle - - - - - - Other - - - - - - Total $ 4,733 $ 89 $ 83 $ 1,349 $ 4 $ - The following tables set forth an analysis of our allowance for loan losses for the three and six months ended June 30, 2017 and 2016 (in thousands): Three months ended Commercial June 30, 2017 Real Estate and Industrial Consumer Unallocated Total Allowance for loan losses: Beginning balance $ 2,035 $ 231 $ 197 $ - $ 2,463 Provision for loan losses 302 (9) 53 - 346 Loans charged-off (95) (2) (55) - (152) Recoveries 2 13 15 - 30 Total ending allowance balance $ 2,244 $ 233 $ 210 $ - $ 2,687 Six months ended Commercial June 30, 2017 Real Estate and Industrial Consumer Unallocated Total Allowance for loan losses: Beginning balance $ 1,946 $ 218 $ 185 $ - $ 2,349 Provision for loan losses 586 11 102 - 699 Loans charged-off (293) (23) (110) - (426) Recoveries 5 27 33 - 65 Total ending allowance balance $ 2,244 $ 233 $ 210 $ - $ 2,687 Three months ended Commercial June 30, 2016 Real Estate and Industrial Consumer Unallocated Total Allowance for loan losses: Beginning balance $ 1,904 $ 93 $ 138 $ - $ 2,135 Provision for loan losses (20) 82 23 - 85 Loans charged-off (94) (77) (44) - (215) Recoveries 7 28 27 - 62 Total ending allowance balance $ 1,797 $ 126 $ 144 $ - $ 2,067 Six months ended Commercial June 30, 2016 Real Estate and Industrial Consumer Unallocated Total Allowance for loan losses: Beginning balance $ 1,676 $ 77 $ 105 $ - $ 1,858 Provision for loan losses 278 93 89 - 460 Loans charged-off (167) (77) (114) - (358) Recoveries 10 33 64 - 107 Total ending allowance balance $ 1,797 $ 126 $ 144 $ - $ 2,067 Nonaccrual loans, and loans past due 90 days still on accrual status, consist of smaller balance homogeneous loans that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual status, by class of loans, as of June 30, 2017 and December 31, 2016 (in thousands): June 30, 2017 December 31, 2016 Loans Past Due Loans Past Due Over 90 Days Over 90 Days Nonaccrual Still Accruing Nonaccrual Still Accruing Real estate: One to four family $ 4,181 $ - $ 3,428 $ - Multi-family - - - - Commercial real estate 1,348 - 970 - Construction and land 38 - 41 - Commercial and industrial 30 - 90 - Consumer: Home equity loans and lines of credit 171 - 155 - Motor vehicle 13 - - - Other 14 - 5 - Total $ 5,795 $ - $ 4,689 $ - The following tables present the aging of the recorded investment in past due loans as of June 30, 2017 and December 31, 2016 by class of loans. Non-accrual loans of $5.8 million as of June 30, 2017 and $4.7 million at December 31, 2016 are included in the tables below and have been categorized based on their payment status (in thousands): 30 - 59 60 - 89 Greater than Purchased Days Days 89 Days Total Credit-Impaired Loans Not Past Due Past Due Past Due Past Due Loans Past Due Total June 30, 2017 Real estate: One to four family $ 1,005 $ 66 $ 2,312 $ 3,383 $ 957 $ 169,883 $ 174,223 Multi-family - - - - - 7,391 7,391 Commercial real estate 76 - 1,022 1,098 718 79,120 80,936 Construction and land - - - - - 11,458 11,458 Commercial and industrial - 6 - 6 - 36,823 36,829 Consumer: Home equity loans and lines of credit - 5 141 146 - 10,257 10,403 Motor vehicle 42 24 - 66 - 10,348 10,414 Other 19 27 4 50 - 7,746 7,796 Total $ 1,142 $ 128 $ 3,479 $ 4,749 $ 1,675 $ 333,026 $ 339,450 30 - 59 60 - 89 Greater than Purchased Days Days 89 Days Total Credit-Impaired Loans Not Past Due Past Due Past Due Past Due Loans Past Due Total December 31, 2016 Real estate: One to four family $ 899 $ 454 $ 1,679 $ 3,032 $ 1,013 $ 173,756 $ 177,801 Multi-family - - - - - 6,823 6,823 Commercial real estate 101 - 465 566 858 81,745 83,169 Construction and land 41 - - 41 - 10,978 11,019 Commercial and industrial 1 47 76 124 - 38,623 38,747 Consumer: Home equity loans and lines of credit - 1 155 156 - 10,499 10,655 Motor vehicle 40 15 - 55 - 10,569 10,624 Other 2 20 - 22 1 7,854 7,877 Total $ 1,084 $ 537 $ 2,375 $ 3,996 $ 1,872 $ 340,847 $ 346,715 Troubled Debt Restructurings : As of June 30, 2017, the Company had a recorded investment in six TDRs which totaled $3.3 million. There were three TDRs which totaled $3.2 million at December 31, 2016. A less than market rate and extended term was granted as concessions for TDRs. No additional charge-off has been made for the loan relationships. No additional commitments to lend have been made to the borrower. The Company has allocated $23,000 and $0 of specific allowance for the loan relationshi ps at June 30, 2017 and December 31, 2016. June 30, 2017 TDRs on (in thousands) Non-accrual Other TDRs Total TDRs Real Estate: One to four family $ 148 $ 16 $ 164 Multi-family - - - Commercial real estate 950 2,195 3,145 Construction and land - - - Commercial and industrial - - - Consumer: Home equity loans and lines of credit - - - Motor vehicle - - - Other - - - Total $ 1,098 $ 2,211 $ 3,309 December 31, 2016 TDRs on (in thousands) Non-accrual Other TDRs Total TDRs Real Estate: One to four family $ - $ 17 $ 17 Multi-family - - - Commercial real estate 166 3,047 3,213 Construction and land - - - Commercial and industrial 19 - 19 Consumer: Home equity loans and lines of credit - - - Motor vehicle - - - Other - - - Total $ 185 $ 3,064 $ 3,249 The following table presents TDRs that occurred during the three and six months ended June 30, 2017 and 2016 (dollars in thousands): Three months ended June 30, 2017 Three months ended June 30, 2016 Loan Class Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Real Estate: One to four family 1 $ 34 $ 34 1 $ 17 $ 17 Multi-family - - - - - - Commercial real estate 1 117 117 - - - Construction and land - - - - - - Commercial and industrial - - - - - - Consumer: Home equity loans and lines of credit - - - - - - Motor vehicle - - - - - - Other - - - - - - Total 2 $ 151 $ 151 1 $ 17 $ 17 Six months ended June 30, 2017 Six months ended June 30, 2016 Loan Class Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Real Estate: One to four family 2 $ 148 $ 148 1 $ 17 $ 17 Multi-family - - - - - - Commercial real estate 1 117 117 - - - Construction and land - - - - - - Commercial and industrial - - - - - - Consumer: Home equity loans and lines of credit - - - - - - Motor vehicle - - - - - - Other - - - - - - Total 3 $ 265 $ 265 1 $ 17 $ 17 There were two TDRs considered to be in default within twelve months of modification as of June 30, 2017. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. The following tables includes defaults that occurred during the three and six months ended June 30, 2017 and 2016 which were within twelve months of modification. Three months ended June 30, 2017 Three months ended June 30, 2016 June 30, 2017 TDRs on TDRs on (in thousands) Non-accrual Other TDRs Total TDRs Non-accrual Other TDRs Total TDRs Real Estate: One to four family $ 114 $ - $ 114 $ - $ - $ - Multi-family - - - - - - Commercial real estate 833 - 833 - - - Construction and land - - - - - - Commercial and industrial - - - - - - Consumer: Home equity loans and lines of credit - - - - - - Motor vehicle - - - - - - Other - - - - - - Total $ 947 $ - $ 947 $ - $ - $ - Six months ended June 30, 2017 Six months ended June 30, 2016 June 30, 2017 TDRs on TDRs on (in thousands) Non-accrual Other TDRs Total TDRs Non-accrual Other TDRs Total TDRs Real Estate: One to four family $ 114 $ - $ 114 $ - $ - $ - Multi-family - - - - - - Commercial real estate 833 - 833 - - - Construction and land - - - - - - Commercial and industrial - - - - - - Consumer: Home equity loans and lines of credit - - - - - - Motor vehicle - - - - - - Other - - - - - - Total $ 947 $ - $ 947 $ - $ - $ - CREDIT QUALITY INDICATORS: The Company categorizes 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, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans. The analysis for residential real estate and consumer loans primarily includes review of past due status. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loss. Loans classified as loss are considered uncollectable and of such little value that continuing to carry them as an asset is not feasible. Loans will be classified as a loss when 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 possible at some time in the future. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands): Special June 30, 2017 Pass Mention Substandard Doubtful Loss Total One to four family $ 166,577 $ 2,095 $ 5,551 $ - $ - $ 174,223 Multi-family 7,391 - - - - 7,391 Commercial real estate 73,349 2,968 4,619 - - 80,936 Construction and land 11,271 - 187 - - 11,458 Commercial and industrial 33,171 2,402 1,256 - - 36,829 Home equity loans and lines of credit 10,162 35 206 - - 10,403 Motor vehicle 10,361 11 42 - - 10,414 Other 7,778 7 11 - - 7,796 Total $ 320,060 $ 7,518 $ 11,872 $ - $ - $ 339,450 Special December 31, 2016 Pass Mention Substandard Doubtful Loss Total One to four family $ 171,109 $ 2,167 $ 4,525 $ - $ - $ 177,801 Multi-family 6,823 - - - - 6,823 Commercial real estate 74,267 4,048 4,854 - - 83,169 Construction and land 10,826 - 193 - - 11,019 Commercial and industrial 36,172 1,802 773 - - 38,747 Home equity loans and lines of credit 10,478 6 171 - - 10,655 Motor vehicle 10,594 2 28 - - 10,624 Other 7,872 - 5 - - 7,877 Total $ 328,141 $ 8,025 $ 10,549 $ - $ - $ 346,715 There were $1.7 million and $1.9 million purchased credit impaired (“PCI”) loans included in substandard loans at June 30, 2017 and December 31, 2016, respectively. The Company holds purchased loans without evidence of credit quality deterioration. In addition, the Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable that all contractually required payments would not be collected. A summary of non-impaired purchased loans and credit-impaired purchased loans with the carrying amount of those loans is as follows at June 30, 2017 and December 31, 2016 (in thousands): Non-impaired Credit-impaired Purchased Purchased Purchased Loans as of June 30, 2017 Loans Loans Real estate: One to four family $ 28,614 $ 957 Multi-family 2,042 - Commercial real estate 16,422 718 Construction and land 532 - Commercial and industrial 2,171 - Consumer loans: Home equity loans and lines of credit 1,123 - Motor vehicle 88 - Other 593 - Total loans $ 51,585 $ 1,675 Non-impaired Credit-impaired Purchased Purchased Purchased Loans as of December 31, 2016 Loans Loans Real estate: One to four family $ 30,449 $ 1,013 Multi-family 2,115 - Commercial real estate 19,278 858 Construction and land 652 - Commercial and industrial 2,783 - Consumer loans: Home equity loans and lines of credit 1,433 - Motor vehicle 202 - Other 706 1 Total loans $ 57,618 $ 1,872 For the purchased loans disclosed above, the Company did not increase the allowance for loan losses for the three and six months ended June 30, 2017 and 2016. The following table presents the composition of the acquired loans at June 30, 2017: As of June 30, 2017 Contractual Remaining Carrying (in thousands) Amount Discount Amount Real estate: One to four family $ 30,012 $ (441) $ 29,571 Multi-family 2,050 (8) 2,042 Commercial real estate 17,375 (235) 17,140 Construction and land 534 (2) 532 Commercial and industrial 2,180 (9) 2,171 Consumer loans: Home equity loans and lines of credit 1,129 (6) 1,123 Motor vehicle 90 (2) 88 Other 596 (3) 593 Total loans $ 53,966 $ (706) $ 53,260 The following tables presents the purchased loans that are included within the scope of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, as of June 30, 2017 and December 31, 2016. (in thousands) June 30, 2017 December 31, 2016 Carrying amount $ 1,675 $ 1,872 Non-accretable difference 261 272 Accretable yield 122 146 Contractually-required principal and interest payments $ 2,058 $ 2,290 The Company adjusted interest income to recognize $12,000 , $24,000 , $19,000 and $86,000 of accretable yield on credit-impaired purchased loans for the three and six months ended June 30, 2017 and 2016, respectively. Accretable yield, or income expected to be collected, is as follows for the six months ended June 30, 2017 and 2016 (in thousands): 2017 2016 Balance at January 1, $ 146 $ 292 New Loans Purchased - - Accretion of income (24) (86) Reclassifications from nonaccretable difference - - Disposals - - Balance at June 30, $ 122 $ 206 |