Allowance for Credit Losses [Text Block] | NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are generally stated at the principal amount outstanding. Advances under the terms of a loan to pay property taxes, insurance, legal and other costs are generally capitalized and reported as interest and other receivables. The Company’s portfolio consists primarily of real estate loans generally collateralized by first, second and third deeds of trust. Interest income on loans is accrued by the simple interest method. Loans are generally placed on nonaccrual status when the borrowers are past due greater than ninety days or when full payment of principal and interest is not expected. When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest is included in the recorded investment in the impaired loan that is measured as described below. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Cash receipts on nonaccrual loans are used to reduce any outstanding accrued interest, and then are recorded as interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Company’s investment in the loan is fully recoverable. The Company does not incur origination costs and does not earn or collect origination fees from borrowers as OFG is entitled to all such fees (see Note 9). Loans and the related accrued interest and advances are analyzed by management on a periodic basis for ultimate recovery. The allowance for loan losses is management’s estimate of probable credit losses inherent in the Company’s loan portfolio that have been incurred as of the balance sheet date. The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of two primary components: specific reserves related to impaired loans that are individually evaluated for impairment and general reserves for inherent losses related to loans that are not considered impaired and are collectively evaluated for impairment. Regardless of a loan type, a loan is considered impaired when, based on current information and events, management believes it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement or when monthly payments are delinquent for more than 90 days on a loan. All loans determined to be impaired are individually evaluated for impairment. When a loan is considered impaired, management estimates impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, management may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. These valuations are generally updated during the fourth quarter but may be updated during interim periods if deemed appropriate by management. A restructuring of a debt constitutes a troubled debt restructuring (“TDR”) if the Company for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. Restructured loans typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. Loans that are reported as TDR’s are considered impaired and measured for impairment as described above. The determination of the general reserve for loans that are not considered impaired and are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, and qualitative factors to include economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan portfolio, and probable losses inherent in the portfolio taken as a whole. The Company maintains a separate allowance for each portfolio segment (loan type). These portfolio segments include commercial real estate, residential real estate and land loans. The allowance for loan losses attributable to each portfolio segment, which includes both impaired loans that are individually evaluated for impairment and loans that are not considered impaired and are collectively evaluated for impairment, is combined to determine the Company’s overall allowance, which is included on the consolidated balance sheet. The reserve for loans that are not considered impaired consists of reserve factors that are based on management’s assessment of the following for each portfolio segment: (1) inherent credit risk, (2) historical losses, and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below. Land Loans Commercial and Residential Real Estate Loans The following tables show the changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2016 and 2015 and the allocation of the allowance for loan losses and loans as of June 30, 2016 and December 31, 2015 by portfolio segment and by impairment methodology: 2016 Commercial Residential Land Total Allowance for loan losses: Three Months Ended June 30, 201 6 Beginning balance $ 1,140,527 $ 503,922 $ 309,072 $ 1,953,521 Charge-offs (447,520 ) — — (447,520 ) Provision 71,893 100,407 102,620 274,920 Ending Balance $ 764,900 $ 604,329 $ 411,692 $ 1,780,921 Six Months Ended June 30, 201 6 Beginning balance $ 1,140,530 $ 455,587 $ 246,329 $ 1,842,446 Charge-offs (447,520 ) — — (447,520 ) Provision 71,890 148,742 165,363 385,995 Ending balance $ 764,900 $ 604,329 $ 411,692 $ 1,780,921 As of June 30, 2016 Ending balance: individually evaluated for impairment $ — $ — $ — $ — Ending balance: collectively evaluated for impairment $ 764,900 $ 604,329 $ 411,692 $ 1,780,921 Ending balance $ 764,900 $ 604,329 $ 411,692 $ 1,780,921 Loans: Ending balance $ 92,022,283 $ 20,915,061 $ 6,643,523 $ 119,580,867 Ending balance: individually evaluated for impairment $ 1,432,000 $ 6,662,298 $ — $ 8,094,298 Ending balance: collectively evaluated for impairment $ 90,590,283 $ 14,252,763 $ 6,643,523 $ 111,486,569 2015 Commercial Residential Land Total Allowance for loan losses: Three Months Ended June 30, 2015 Beginning balance $ 911,766 $ 1,973,021 $ 72,134 $ 2,956,921 Charge-offs — — — — Provision 28,449 101,596 210,432 340,477 Ending Balance $ 940,215 $ 2,074,617 $ 282,566 $ 3,297,398 Six Months Ended June 30, 2015 Beginning balance $ 888,260 $ 1,975,112 $ 5,983 $ 2,869,355 Charge-offs — — — — Provision 51,955 99,505 276,583 428,043 Ending balance $ 940,215 $ 2,074,617 $ 282,566 $ 3,297,398 As of December 31, 2015 Ending balance: individually evaluated for impairment $ 485,823 $ — $ — $ 485,823 Ending balance: collectively evaluated for impairment $ 654,707 $ 455,587 $ 246,329 $ 1,356,623 Ending balance $ 1,140,530 $ 455,587 $ 246,329 $ 1,842,446 Loans: Ending balance $ 76,800,297 $ 24,675,867 $ 5,267,643 $ 106,743,807 Ending balance: individually evaluated for impairment $ 1,078,752 $ 7,615,055 $ — $ 8,693,807 Ending balance: collectively evaluated for impairment $ 75,721,545 $ 17,060,812 $ 5,267,643 $ 98,050,000 The following tables show an aging analysis of the loan portfolio by the time monthly payments are past due as of June 30, 2016 and December 31, 2015: June 30 , 201 6 Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Commercial $ 1,175,000 $ — $ 1,432,000 $ 2,607,000 $ 89,415,283 $ 92,022,283 Residential 1,950,859 — 6,662,298 8,613,157 12,301,904 20,915,061 Land — — — — 6,643,523 6,643,523 $ 3,125,859 $ — $ 8,094,298 $ 11,220,157 $ 108,360,710 $ 119,580,867 December 31, 2015 Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Commercial $ — $ — $ 1,078,752 $ 1,078,752 $ 75,721,545 $ 76,800,297 Residential — — 7,615,055 7,615,055 17,060,812 24,675,867 Land — — — — 5,267,643 5,267,643 $ — $ — $ 8,693,807 $ 8,693,807 $ 98,050,000 $ 106,743,807 All of the loans that are 90 or more days past due as listed above are on non-accrual status as of June 30, 2016 and December 31, 2015. The following tables show information related to impaired loans as of and for the three and six months ended June 30, 2016: As of June 30, 2016 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial $ 1,469,729 $ 1,432,000 $ — Residential 7,131,693 6,662,298 — Land — — — $ 8,601,422 $ 8,094,298 $ — With an allowance recorded: Commercial $ — $ — $ — Residential — — — Land — — — $ — $ — $ — Total s : Commercial $ 1,469,729 $ 1,432,000 $ — Residential 7,131,693 6,662,298 — Land — — — $ 8,601,422 $ 8,094,298 $ — Three Months Ended June 30, 2016 Six Months Ended June 30 , 201 6 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial $ 1,467,371 $ — $ 2,167,256 $ — Residential 7,278,422 5,183 6,501,620 10,430 Land — — — — $ 8,745,793 $ 5,183 $ 8,668,876 $ 10,430 With an allowance recorded: Commercial $ 381,715 $ — $ 1,730,569 $ — Residential — — — — Land — — — — $ 381,715 $ — $ 1,730,569 $ — Total s : Commercial $ 1,849,086 $ — $ 3,897,825 $ — Residential 7,278,422 5,183 6,501,620 10,430 Land — — — — $ 9,127,508 $ 5,183 $ 10,399,445 $ 10,430 The following tables show information related to impaired loans as of December 31, 2015 and for the three and six months ended June 30, 2015: As of December 31, 2015 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial $ — $ — $ — Residential 8,063,450 7,615,055 — Land — — — $ 8,063,450 $ 7,615,055 $ — With an allowance recorded: Commercial $ 1,144,864 $ 1,078,752 $ 485,823 Residential — — — Land — — — $ 1,144,864 $ 1,078,752 $ 485,823 Total s : Commercial $ 1,144,864 $ 1,078,752 $ 485,823 Residential 8,063,450 7,615,055 — Land — — — $ 9,208,314 $ 8,693,807 $ 485,823 Three Months Ended June 30, 2015 Six Months Ended June 30, 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial $ — $ — $ 3,868,828 $ 601,660 Residential 248,783 5,433 250,281 10,926 Land — — 620,023 216,904 $ 248,783 $ 5,433 $ 4,739,132 $ 829,490 With an allowance recorded: Commercial $ 1,105,184 $ 8,990 $ 1,092,442 $ 22,473 Residential 7,983,345 59,600 7,983,345 122,600 Land — — — — $ 9,088,529 $ 68,590 $ 9,075,787 $ 145,073 Total s : Commercial $ 1,105,184 $ 8,990 $ 4,961,270 $ 624,133 Residential 8,232,127 65,033 8,233,626 133,526 Land — — 620,023 216,904 $ 9,337,311 $ 74,023 $ 13,814,919 $ 974,563 The recorded investment balances presented in the above tables include amounts advanced in addition to principal on impaired loans (such as property taxes, insurance and legal charges) that are reimbursable by borrowers and are included in interest and other receivables in the accompanying consolidated balance sheets. Interest income recognized on a cash basis for impaired loans approximates the interest income recognized as reflected in the tables above. Troubled Debt Restructurings The Company has allocated approximately $0 and $486,000 of specific reserves on loans totaling approximately $7,132,000 and $9,208,000 (recorded investments before reserves) to borrowers whose loan terms had been modified in troubled debt restructurings as of June 30, 2016 and December 31, 2015, respectively. The Company has not committed to lend additional amounts to any of these borrowers. No loans were modified as troubled debt restructurings during the three and six months ended June 30, 2016 and 2015, nor were there loans modified as troubled debt restructurings within the previous twelve months for which there was a payment default during the three and six months ended June 30, 2016 and 2015. |