Loans | (4) Loans The loan portfolio segments and classes are as follows (in thousands) At September 30, 2016 At Real estate loans: One-to-four-family residential $ 73,154 $ 68,169 Commercial and multi-family 227,658 192,568 Construction and land 23,265 17,570 Home equity 11,166 6,623 Total real estate loans 335,243 284,930 Commercial loans 62,709 41,417 Consumer loans 1,239 2,726 Total loans 399,191 329,073 Deduct: Deferred loan fees, net (351 ) (296 ) Allowance for loan losses (2,846 ) (2,511 ) Loans, net $ 395,994 $ 326,266 The Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with policies set forth and approved by the Company’s Board of Directors. The portfolio segments identified by the Company are as follows: Real Estate Loans. One-to-four-family residential real estate loans are underwritten based on the borrower’s repayment capacity and source, value of the underlying property, credit history and stability. Commercial and multifamily real estate loans are secured by the subject property and are underwritten based on loan to value limits, cash flow coverage and general creditworthiness of the obligors. These loans are generally considered to have more credit risk than traditional one-to-four-family residential loans because these loans tend to involve larger loan balances and their repayment is typically dependent upon the successful operation and management of the underlying real estate. Construction and Land loans are to finance the construction of owner-occupied and lease properties. These loans are categorized as construction loans during the construction period, later converting to commercial or one-to- four-family residential loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Construction loan funds are disbursed periodically based on the percentage of construction or development completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Construction and land loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof. Home equity loans consists of either revolving line of credit, term, or second mortgage loans secured by one-to-four residential real estate. These loans have similar risk characteristics to one-to-four family loans and are secured by a first or second mortgage on the borrower’s principal residence or their second/vacation home (excluding investment/rental property). There are minimum credit score standards, maximum debt to income ratios and credit requirements on each Home equity product. Home equity lines of credit are variable rate based on an index of Wall Street Journal prime rate with a margin. Commercial Loans. Consumer Loans. An analysis of the change in the allowance for loan losses follows (in thousands) Real Estate Commercial Consumer Unallocated Total Three Months Ended September 30, 2016: Beginning balance $ 2,240 606 35 14 $ 2,895 (Credit) Provision for loan losses (234 ) 190 (9 ) 53 — Charge—offs (73 ) (1 ) — — (74 ) Recoveries 8 17 — — 25 Ending balance $ 1,941 812 26 67 $ 2,846 Three Months Ended September 30, 2015: Beginning balance $ 1,313 496 5 69 $ 1,883 (Credit) Provision for loan losses (116 ) (29 ) 15 130 — Charge-offs — — — — — Recoveries 9 54 1 — 64 Ending balance $ 1,206 521 21 199 $ 1,947 Nine months Ended September 30, 2016: Beginning balance $ 1,354 583 23 551 $ 2,511 Provision (credit) for loan losses 647 184 3 (484 ) 350 Charge—offs (95 ) (12 ) (3 ) — (110 ) Recoveries 35 57 3 — 95 Ending balance $ 1,941 812 26 67 $ 2,846 Nine months Ended September 30, 2015: Beginning balance $ 1,409 308 9 — $ 1,726 (Credit) Provision for loan losses (326 ) 118 9 199 — Charge-offs (1 ) (9 ) — — (10 ) Recoveries 124 104 3 — 231 Ending balance $ 1,206 521 21 199 $ 1,947 At September 30, 2016: Individually evaluated for impairment: Recorded investment $ 1,347 510 — — $ 1,857 Balance in allowance for loan losses $ 32 97 — — $ 129 Collectively evaluated for impairment: Recorded investment $ 227,808 48,550 1,239 — $ 277,597 Balance in allowance for loan losses $ 1,839 708 26 67 $ 2,640 Recorded investment in loans accounted for under ASC 310-20 $ 105,897 13,649 — — $ 119,546 Balance in allowance for loan losses $ 70 7 — — $ 77 Recorded investment in loans accounted for under ASC 310-30 $ 191 — — — $ 191 Balance in allowance for loan losses $ — — — — $ — At December 31, 2015: Individually evaluated for impairment: Recorded investment $ 1,527 539 — — $ 2,066 Balance in allowance for loan losses $ 39 9 — — $ 48 Collectively evaluated for impairment: Recorded investment $ 159,738 11,830 1,124 — $ 172,692 Balance in allowance for loan losses $ 1,315 574 23 551 $ 2,463 Recorded investment in loans accounted for under ASC 310-20 $ 123,022 28,990 1,602 — $ 153,614 Balance in allowance for loan losses $ — — — — $ — Recorded investment in loans accounted for under ASC 310-30 $ 643 58 — — $ 701 Balance in allowance for loan losses $ — — — — $ — 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. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further, commercial, multi-family and commercial real estate loans are generally reviewed periodically to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will determine the appropriate loan grade. Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of a deterioration in the credit worthiness of the borrower; or (c) the borrower contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged-off. The Company uses the following definitions for risk ratings: Pass Special Mention Substandard Doubtful Loss The following summarizes the loan credit quality (in thousands) Real Estate Loans One-to Commercial Construction Home Commercial Consumer Total Credit Risk Profile by Internally Assigned Grade: At September 30, 2016: Grade: Pass $ 72,096 224,192 22,546 10,823 61,507 1,239 $ 392,403 Special mention 821 736 664 — 81 — 2,302 Substandard 237 2,730 55 343 1,121 — 4,486 Total $ 73,154 227,658 23,265 11,166 62,709 1,239 $ 399,191 At December 31, 2015: Grade: Pass $ 66,271 189,979 16,705 6,241 38,375 2,726 $ 320,297 Special mention 972 1,066 707 382 70 — 3,197 Substandard 926 1,523 158 — 2,972 — 5,579 Total $ 68,169 192,568 17,570 6,623 41,417 2,726 $ 329,073 Age analysis of past-due loans is as follows (in thousands) Accruing Loans 30-59 60-89 90 Days Or Total Current Nonaccrual Total At September 30, 2016: Real estate mortgage loans: One-to-four family residential $ 107 — — 107 72,840 207 $ 73,154 Commercial Real Estate and Multifamily 309 — — 309 226,790 559 227,658 Construction and Land — — — — 23,210 55 23,265 Home Equity 23 — — 23 11,143 — 11,166 Commercial loans — — — — 62,574 135 62,709 Consumer loans 48 2 — 50 1,189 — 1,239 Total $ 487 2 — 489 397,746 956 $ 399,191 At December 31, 2015: Real estate mortgage loans: One-to-four family residential $ 255 13 — 268 67,861 40 $ 68,169 Commercial Real Estate and Multifamily 355 — — 355 191,660 553 192,568 Construction and Land 192 — — 192 17,220 158 17,570 Home Equity 11 — — 11 6,612 — 6,623 Commercial loans 193 — — 193 41,224 — 41,417 Consumer loans — — — — 2,726 — $ 2,726 Total $ 1,006 13 — 1,019 327,303 751 $ 329,073 The following summarizes the amount of impaired loans (in thousands) With No Related With an Allowance Recorded Total Recorded Unpaid Recorded Unpaid Related Recorded Unpaid Related September 30, 2016 Real estate mortgage loans: One-to- four-family residential $ — $ — $ 451 $ 451 $ 32 $ 451 $ 451 $ 32 Commercial and Multifamily 896 1,798 — 147 — 896 1,945 — Commercial loans 434 464 76 81 97 510 545 97 $ 1,330 $ 2,262 $ 527 $ 679 $ 129 $ 1,857 $ 2,941 $ 129 December 31, 2015: Real estate mortgage loans: One-to- four-family residential $ — $ — $ 460 $ 460 $ 39 $ 460 $ 460 $ 39 Commercial and Multifamily 909 1,849 — — — 909 1,849 — Construction and Land 158 164 — — — 158 164 — Commercial loans 452 482 87 92 9 539 574 9 $ 1,519 $ 2,495 $ 547 $ 552 $ 48 $ 2,066 $ 3,047 $ 48 The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands) Three Months Ended September 30, 2016 2015 Average Interest Interest Average Interest Interest Real estate mortgage loans: One-to-four-family residential $ 453 6 6 452 7 4 Commercial real estate and Multifamily 902 8 19 940 7 16 Land and construction 73 — 6 255 — 10 Commercial loans 518 9 10 552 — 10 Total $ 1,946 23 41 2,199 14 40 Nine months Ended September 30, 2016 2015 Average Interest Interest Average Interest Interest Real estate mortgage loans: One-to-four-family residential $ 455 20 18 231 11 8 Commercial real estate and Multifamily 918 36 66 1,451 103 114 Land and construction 167 — 8 85 — 10 Commercial loans 525 27 28 590 — 33 Total $ 2,065 83 120 2,357 114 165 During the three and the nine months ended September 30, 2016 and 2015, the Company did not enter into any debt restructurings and the Company had no loans restructured as troubled debt restructurings that subsequently defaulted that had been modified in the previous twelve month period. As of September 30, 2016, the Company had remaining approximately $864,000 accruing TDR’s and $148,000 of non-accruing TDR’s. At September 30, 2016, the contractually required principal of Purchased Credit Impaired (“PCI”) loans acquired was $312,000. The recorded investment of PCI loans was $191,000. There were no additional losses generated during the three month or nine months ended September 30, 2016 from these loans. |