Loans

3 Months Ended

Mar. 31, 2014

LoansAbstract

Loans

(3) Loans. The segments of loans are as follows (in thousands):

	At March 31,		At December 31,
	2014		2013
Residential real estate	$	24,487	$	26,468
Multi-family real estate		3,573		3,605
Commercial real estate		28,518		27,883
Land and construction		6,351		6,459
Commercial		16,361		16,584
Consumer		25		81
Total loans		79,315		81,080
Add (deduct):
Net deferred loan fees, costs and premiums		339		380
Allowance for loan losses		(2,215)		(2,211	)
Loans, net	$	77,439	$	79,249

An analysis of the change in the allowance for loan losses follows (in thousands):

	Residential			Multi-Family			Commercial			Land
	Real			Real			Real			and
	Estate			Estate			Estate			Construction			Commercial		Consumer			Unallocated			Total
Three Months Ended March 31, 2014:
Beginning balance	$	49		$	4		$	934		$	458		$	61	$	0		$	705		$	2,211
Provision (credit) for loan losses		4			3			259			11			26		(4	)		(299	)		0
Charge-offs		0			0			0			0			0		0			0			0
Recoveries		0			0			0			0			0		4			0			4
Ending balance	$	53		$	7		$	1,193		$	469		$	87	$	0		$	406		$	2,215
Three Months Ended March31, 2013:
Beginning balance	$	434		$	267		$	1,372		$	166		$	216	$	4		$	0		$	2,459
Provision (credit) for loan losses		32			(224	)		1,567			(36	)		40		(7	)		0			1,372
Charge-offs		(97	)		0			(1,197	)		0			0		0			0			(1,294	)
Recoveries		0			0			0			0			0		3			0			3
Ending balance	$	369		$	43		$	1,742		$	130		$	256	$	0		$	0		$	2,540
At March 31, 2014:
Individually evaluated for impairment:
Recorded investment	$	6,968		$	0		$	4,635		$	0		$	1,200	$	0		$	0		$	12,803
Balance in allowance for loan losses	$	0		$	0		$	192		$	0		$	0	$	0		$	0		$	192
Collectively evaluated for impairment:
Recorded investment	$	17,519		$	3,573		$	23,883		$	6,351		$	15,161	$	25		$	0		$	66,512
Balance in allowance for loan losses	$	53		$	7		$	1,001		$	469		$	87	$	0		$	406		$	2,023
At December 31, 2013:
Individually evaluated for impairment:
Recorded investment	$	7,100		$	0		$	5,227		$	0		$	1,216	$	0		$	0		$	13,543
Balance in allowance for loan losses	$	0		$	0		$	192		$	0		$	0	$	0		$	0		$	192
Collectively evaluated for impairment:
Recorded investment	$	19,368		$	3,605		$	22,656		$	6,459		$	15,368	$	81		$	0		$	67,537
Balance in allowance for loan losses	$	49		$	4		$	742		$	458		$	61	$	0		$	705		$	2,019

(continued)

The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with written policies set forth and approved by the Board of Directors (“Board”). The portfolio segments identified by the Company are as follows:

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. Multi-family real estate and commercial real estate loans are secured by the subject property and are underwritten based on among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Land and construction loans to borrowers are to finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate 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. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction 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, costs 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.

Commercial. Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets. These loans are also affected by adverse economic conditions should they prevail within the Company’s local market.

Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized 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. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts.

The following summarizes the loan credit quality (in thousands):

			OLEM
			(Other Loans
			Especially
	Pass		Mentioned)		Substandard		Doubtful		Loss		Total
At March 31, 2014:
Residential real estate	$	16,235	$	0	$	8,252	$	0	$	0	$	24,487
Multi-family real estate		3,573		0		0		0		0		3,573
Commercial real estate		23,261		2,513		2,744		0		0		28,518
Land and construction		4,390		1,961		0		0		0		6,351
Commercial		13,114		295		2,952		0		0		16,361
Consumer		25		0		0		0		0		25
Total	$	60,598	$	4,769	$	13,948	$	0	$	0	$	79,315
At December 31, 2013:
Residential real estate	$	18,260	$	1,290	$	6,918	$	0	$	0	$	26,468
Multi-family real estate		3,605		0		0		0		0		3,605
Commercial real estate		18,544		2,539		6,800		0		0		27,883
Land and construction		4,493		1,966		0		0		0		6,459
Commercial		13,056		546		2,982		0		0		16,584
Consumer		81		0		0		0		0		81
Total	$	58,039	$	6,341	$	16,700	$	0	$	0	$	81,080

Internally assigned loan grades are defined as follows:

Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.

OLEM (Other Loans Especially Mentioned) – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.

Substandard – a Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – a loan classified Doubtful has all the weaknesses inherent in one classified Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss– a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company fully charges off any loan classified as Loss.

Age analysis of past-due loans is as follows (in thousands):

	Accruing Loans
					Greater
	30-59		60-89		Than
	Days Past Due		Days Past Due		90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
At March 31, 2014:
Residential real estate	$	1,284	$	0	$	0	$	1,284	$	19,020	$	4,183	$	24,487
Multi-family real estate		0		0		0		0		3,573		0		3,573
Commercial real estate		0		0		0		0		25,774		2,744		28,518
Land and construction		0		0		0		0		6,351		0		6,351
Commercial		0		0		0		0		15,161		1,200		16,361
Consumer		0		0		0		0		25		0		25
Total	$	1,284	$	0	$	0	$	1,284	$	69,904	$	8,127	$	79,315
At December 31, 2013:
Residential real estate	$	1,290	$	0	$	0	$	1,290	$	20,895	$	4,283	$	26,468
Multi-family real estate		0		0		0		0		3,605		0		3,605
Commercial real estate		0		0		0		0		24,565		3,318		27,883
Land and construction		0		0		0		0		6,459		0		6,459
Commercial		281		0		0		281		15,087		1,216		16,584
Consumer		0		0		0		0		81		0		81
Total	$	1,571	$	0	$	0	$	1,571	$	70,692	$	8,817	$	81,080

The following summarizes the amount of impaired loans (in thousands):

	At March 31, 2014							At December 31, 2013
				Unpaid						Unpaid
		Recorded		Principal		Related		Recorded		Principal		Related
		Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Residential real estate		$	6,968	$	7,475	$	0	$	7,100	$	7,607	$	0
Commercial real estate			3,536		3,536		0		4,128		4,534		0
Land and construction			0		0		0		0		0		0
Commercial			1,200		1,442		0		1,216		1,458		0
With an allowance recorded-
Commercial real estate		$	1,099	$	2,913	$	192	$	1,099	$	2,913	$	192
Total:
Residential real estate		$	6,968	$	7,475	$	0	$	7,100	$	7,607	$	0
Commercial real estate		$	4,635	$	6,449	$	192	$	5,227	$	7,447	$	192
Land and construction		$	0	$	0	$	0	$	0	$	0	$	0
Commercial		$	1,200	$	1,442	$	0	$	1,216	$	1,458	$	0
Total		$	12,803	$	15,366	$	192	$	13,543	$	16,512	$	192

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

	For the Period Ended March 31,						For the Period Ended March 31,
	2014						2013
	Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received
Residential real estate	$	7,000	$	49	$	112	$	7,520	$	95	$	126
Commercial real estate	$	4,867	$	21	$	39	$	10,904	$	0	$	45
Land and construction	$	0	$	0	$	0	$	869	$	0	$	15
Commercial	$	1,205	$	0	$	16	$	0	$	0	$	0
Total	$	13,072	$	70	$	167	$	19,293	$	95	$	186

No loans have been determined to be troubled debt restructurings during the three months ended March 31, 2014 or 2013.