Loans and Allowance for Loan Losses | 5. LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans held for investment at the dates indicated is as follows: September 30, 2018 December 31, 2017 (In thousands) Mortgage loans on real estate: Residential: One-to-four family $ 254,279 $ 198,475 Home equity loans and lines of credit 42,401 38,968 Commercial 108,817 101,755 Construction 28,816 25,357 434,313 364,555 Commercial and industrial 18,948 21,766 Consumer 18,075 16,337 Total loans 471,336 402,658 Allowance for loan losses (3,890 ) (3,737 ) Net deferred loan costs and fees, and purchase premiums 1,492 1,452 $ 468,938 $ 400,373 The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2018 and 2017: Second Residential Mortgages Commercial Commercial 1-4 Family and Real Estate Construction and Industrial Consumer Total (In thousands) Three Months Ended September 30, 2018 Allowance at June 30, 2018 $ 969 $ 280 $ 1,505 $ 443 $ 298 $ 247 $ 3,742 Provision (credit) for loan losses 142 11 12 17 (26 ) 22 178 Loans charged-off — — — — — (41 ) (41 ) Recoveries 7 — — — — 4 11 Balance at September 30, 2018 $ 1,118 $ 291 $ 1,517 $ 460 $ 272 $ 232 $ 3,890 Three Months Ended September 30, 2017 Allowance at June 30, 2017 $ 820 $ 338 $ 1,536 $ 389 $ 276 $ 198 $ 3,557 Provision (credit) for loan losses 15 6 42 (50 ) (15 ) 2 — Loans charged-off — — — — — (25 ) (25 ) Recoveries 7 — — — — 6 13 Balance at September 30, 2017 $ 842 $ 344 $ 1,578 $ 339 $ 261 $ 181 $ 3,545 Nine Months Ended September 30, 2018 Allowance at December 31, 2017 $ 854 $ 359 $ 1,620 $ 351 $ 335 $ 218 $ 3,737 Provision (credit) for loan losses 226 (68 ) (103 ) 109 (63 ) 82 183 Loans charged-off — — — — — (80 ) (80 ) Recoveries 38 — — — — 12 50 Balance at September 30, 2018 $ 1,118 $ 291 $ 1,517 $ 460 $ 272 $ 232 $ 3,890 Nine Months Ended September 30, 2017 Allowance at December 31, 2016 $ 1,018 $ 436 $ 1,410 $ 225 $ 37 $ 145 $ 3,271 Provision (credit) for loan losses (195 ) (92 ) 168 114 189 151 335 Loans charged-off — — — — — (134 ) (134 ) Recoveries 19 — — — 35 19 73 Balance at September 30, 2017 $ 842 $ 344 $ 1,578 $ 339 $ 261 $ 181 $ 3,545 Additional information pertaining to the allowance for loan losses at September 30, 2018 and December 31, 2017 is as follows: Second Residential Mortgages Commercial Commercial 1-4 Family and Real Estate Construction and Industrial Consumer Total September 30, 2018 (In thousands) Allowance for impaired loans $ 97 $ — $ — $ — $ — $ — $ 97 Allowance for non-impaired loans 1,021 291 1,517 460 272 232 3,793 Total allowance for loan losses $ 1,118 $ 291 $ 1,517 $ 460 $ 272 $ 232 $ 3,890 Impaired loans $ 5,241 $ 243 $ 247 $ — $ — $ — $ 5,731 Non-impaired loans 249,038 42,158 108,570 28,816 18,948 18,075 465,605 Total loans $ 254,279 $ 42,401 $ 108,817 $ 28,816 $ 18,948 $ 18,075 $ 471,336 December 31, 2017 Allowance for impaired loans $ 160 $ 1 $ 1 $ — $ — $ — $ 162 Allowance for non-impaired loans 694 358 1,619 351 335 218 3,575 Total allowance for loan losses $ 854 $ 359 $ 1,620 $ 351 $ 335 $ 218 $ 3,737 Impaired loans $ 5,205 $ 276 $ 352 $ — $ — $ — $ 5,833 Non-impaired loans 193,270 38,692 101,403 25,357 21,766 16,337 396,825 Total loans $ 198,475 $ 38,968 $ 101,755 $ 25,357 $ 21,766 $ 16,337 $ 402,658 The following is a summary of past due and non-accrual loans at September 30, 2018 and December 31, 2017: 30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Non-accrual Loans (In thousands) September 30, 2018 Residential one-to-four family $ 1,773 $ — $ 635 $ 2,408 $ 1,765 Home equity loans and lines of credit 34 96 71 201 243 Commercial real estate — — — — — Construction — — — — — Commercial and industrial — — — — — Consumer 40 — 13 53 — Total $ 1,847 $ 96 $ 719 $ 2,662 $ 2,008 December 31, 2017 Residential one-to-four family $ 737 $ — $ — $ 737 $ 1,975 Home equity loans and lines of credit 96 — — 96 276 Commercial real estate — — — — — Construction — — — — — Commercial and industrial — — — — — Consumer — — — — — Total $ 833 $ — $ — $ 833 $ 2,251 The following is a summary of impaired loans at September 30, 2018 and December 31, 2017: Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) September 30, 2018 Impaired loans without a valuation allowance: Residential one-to-four family $ 3,004 $ 3,004 Home equity loans and lines of credit 243 243 Commercial real estate 247 247 Total 3,494 3,494 Impaired loans with a valuation allowance: Residential one-to-four family 2,237 2,237 $ 97 Total impaired loans $ 5,731 $ 5,731 $ 97 December 31, 2017 Impaired loans without a valuation allowance: Residential one-to-four family $ 2,685 $ 2,641 Home equity loans and lines of credit 247 247 Commercial real estate 257 257 Total 3,189 3,145 Impaired loans with a valuation allowance: Residential one-to-four family 2,584 2,564 $ 160 Home equity loans and lines of credit 29 29 1 Commercial real estate 95 95 1 Total 2,708 2,688 162 Total impaired loans $ 5,897 $ 5,833 $ 162 Additional information pertaining to impaired loans follows: Average Interest Cash Basis Recorded Income Interest Investment Recognized Recognized (In thousands) Nine Months Ended September 30, 2018 Residential one-to-four family $ 5,197 $ 168 $ 63 Home equity loans and lines of credit 256 28 28 Commercial real estate 294 12 — Total $ 5,747 $ 208 $ 91 Nine Months Ended September 30, 2017 Residential one-to-four family $ 4,896 $ 143 $ 62 Home equity loans and lines of credit 276 1 1 Commercial real estate 732 23 — Total $ 5,904 $ 167 $ 63 Three Months Ended September 30, 2018 Residential one-to-four family $ 5,252 $ 51 $ 24 Home equity loans and lines of credit 243 3 3 Commercial real estate 259 3 — Total $ 5,754 $ 57 $ 27 Three Months Ended September 30, 2017 Residential one-to-four family $ 5,124 $ 44 $ 16 Home equity loans and lines of credit 276 — — Commercial real estate 621 5 — Total $ 6,021 $ 49 $ 16 No additional funds are committed to be advanced in connection with impaired loans. Troubled Debt Restructurings The Company periodically grants concessions to borrowers experiencing financial difficulties. The Company’s troubled debt restructurings consist primarily of interest rate concessions for periods of three months to thirty years for residential real estate loans, and for periods up to one year for commercial real estate loans. At September 30, 2018, the Company had seventeen residential real estate loans and one commercial real estate loan aggregating $3,721,000 and $54,000, respectively, which were subject to troubled debt restructuring agreements. At September 30, 2017, the Company had twenty residential real estate loans and two commercial real estate loan aggregating $4,382,000 and $185,000, respectively, which were subject to troubled debt restructuring agreements. As of September 30, 2018 and 2017, $3,530,000 and $4,567,000, respectively, in troubled debt restructurings were performing in accordance with the terms of the modified loan agreements. Included in such amounts are $369,000 and $1,139,000, respectively, that are being accounted for as non-accrual loans. For the nine months ended September 30, 2018 nine months ended 2017, Management performs a discounted cash flow calculation to determine the amount of valuation reserve required on each of the troubled debt restructurings. Any reserve required is recorded as part of the allowance for loan losses. During the three and nine months ended September 30, 2018 and 2017, there were no material changes to the allowance for loan losses as a result of loan modifications made which were considered a troubled debt restructuring. During the three and nine months ended September 30, 2018 and 2017, there were no troubled debt restructurings that defaulted (over 30 days past due) within twelve months of the restructure date. Credit Quality Information The Company utilizes an eight-grade internal loan rating system for commercial real estate, construction and commercial loans, as follows: Loans rated 1 – 3B are considered “pass” rated loans with low to average risk. Loans rated 4 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. Loans rated 5 are considered “substandard” and are inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected. Loans rated 6 are considered “doubtful” and have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Loans rated 7 are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted. On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial and industrial loans. Annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. The following table presents the Company’s loans by risk rating at the dates indicated: September 30, 2018 December 31, 2017 Commercial Real Construction Commercial and Industrial Commercial Real Construction Commercial and Industrial (In thousands) Loans rated 1 - 3B (Pass rated) $ 108,622 $ 28,816 $ 18,948 $ 101,556 $ 25,357 $ 21,766 Loans rated 4 — — — — — — Loans rated 5 195 — — 199 — — $ 108,817 $ 28,816 $ 18,948 $ 101,755 $ 25,357 $ 21,766 Residential mortgages, home equity loans and lines of credit, and consumer loans are monitored for credit quality based primarily on their payment status. When one of these loans becomes more than 90 days delinquent, it is assigned an internal loan rating. At September 30, 2018, $51,000 in consumer loans were rated as doubtful, $699,000 in residential mortgages were rated as substandard, and $2,551,000 in residential mortgages and $243,000 in home equity loans were rated as special mention. At December 31, 2017, $712,000 in residential mortgages were rated as substandard, and $2,512,000 in residential mortgages and $247,000 in home equity loans were rated as special mention. |