Loans

6 Months Ended

Jun. 30, 2011

Loans [Abstract]

Loans

Note 3 – Loans

A summary of the portfolio loan balances as of June 30, 2011 and December 31, 2010 is as follows (000s omitted):

	June 30,			December 31,
	2011			2010
Mortgage loans on real estate:
Residential 1 to 4 family	$	3,324		$	3,380
Multifamily		12,912			12,355
Commercial		48,436			49,029
Construction		4,150			2,024
Second mortgage		115			118
Equity lines of credit		11,286			11,794
Total mortgage loans on real estate		80,223			78,700
Commercial loans		18,984			20,776
Consumer installment loans		950			964
Total loans		100,157			100,440
Less: Allowance for loan losses		(1,502	)		(1,448	)
Net deferred loan fees		(79	)		(61	)
Net loans	$	98,576		$	98,931

An analysis of the allowance for loan losses for the year to date period ended June 30, 2011 and December 31, 2010 (000s omitted):

Six months ended June 30, 2011

				Home												2010
	Commercial			Equity			Residential			Consumer			Total			Total
Allowance for Loan Losses
Beginning balance	$	1,070		$	352		$	14		$	12		$	1,448		$	1,174
Charge-offs		—			—			—			—			—			(341	)
Recoveries		—			—			—			—			—			45
Provision		61			(3	)		(5	)		1			54			289
Ending balance	$	1,131		$	349		$	9		$	13		$	1,502		$	1,167
Percent of principal balance		1.28	%		3.57	%		1.18	%		1.23	%		1.50	%
Ending balance: individually evaluated for impairment	$	56		$	212		$	—		$	—		$	268
Ending balance: collectively evaluated for impairment	$	1,075		$	137		$	9		$	13		$	1,234
Portfolio Loans
Ending unpaid principal balance	$	88,563		$	9,771		$	760		$	1,063		$	100,157
Ending unpaid principal balance: individually evaluated for impairment	$	699		$	590		$	—		$	—		$	1,289
Ending unpaid principal balance: collectively evaluated for impairment	$	87,864		$	9,181		$	760		$	1,063		$	98,868

Year ended December 31, 2010

				Home
	Commercial			Equity			Residential			Consumer			Total
Allowance for Loan Losses
Beginning balance	$	991		$	166		$	10		$	7		$	1,174
Charge-offs		(141	)		(225	)		—			—			(366	)
Recoveries		46			—			—			—			46
Provision		174			410			4			6			594
Ending balance	$	1,070		$	351		$	14		$	13		$	1,448
Percent of principal balance		1.21	%		3.45	%		1.21	%		1.25	%		1.44	%
Ending balance: individually evaluated for impairment	$	25		$	212		$	—		$	—		$	237
Ending balance: collectively evaluated for impairment	$	1,045		$	139		$	14		$	13		$	1,211
Portfolio Loans
Ending unpaid principal balance	$	88,080		$	10,166		$	1,153		$	1,041		$	100,440
Ending unpaid principal balance: individually evaluated for impairment	$	2,107		$	887		$	—		$	—		$	2,994
Ending unpaid principal balance: collectively evaluated for impairment	$	85,973		$	9,279		$	1,153		$	1,041		$	97,446

Management uses a loan rating system to identify the inherent risk associated with portfolio loans. Loan ratings are based on a subjective definition that describes the conditions present at each level of risk and identifies the important aspect of each loan. The Bank currently uses a 1 to 8 grading scale for commercial loans. Each loan grade corresponds to a specific qualitative classification. All other consumer and mortgage loan types are internally rated based on various credit quality characteristics using the same qualitative classification. The risk rating classifications included: pass, special mention, substandard, doubtful and loss.

Loans risk-rated as special mention, are considered criticized loans, exhibiting some potential credit weakness that requires additional attention by management and are maintained on the internal watch list and monitored on a regular basis. Loans risk-rated as substandard or higher are considered classified loans exhibiting well-defined credit weakness and are recorded on the problem loan list and evaluated more frequently. The Bank’s credit administration function is designed to provide increased information on all types of loans to identify adverse credit risk characteristics in a timely manner. Total criticized and classified loans increased $2,377,000 to $13,267,000 at June 30, 2011 from $10,890,000 at December 31, 2010. The change was the result of an increase totaling $4,087,000 in special mention loans and a $1,710,000 decrease in substandard accounts. The majority of the increase is isolated to commercial loans and represents the weakness of the economic environment of our market area. The Bank has no loans in non-accrual status. There were no loans that were risk rated doubtful or loss at June 30, 2011 or December 31, 2010. Management closely monitors each loan adversely criticized or classified and institutes appropriate measures to eliminate the basis of criticism.

The primary risk elements considered by management regarding each consumer and residential real estate loan are lack of timely payment and loss of real estate values. Management has a reporting system that monitors past due loans and has adopted policies to pursue its creditor’s rights in order to preserve the Bank’s position. The primary risk elements concerning commercial and industrial loans and commercial real estate loans are the financial condition of the borrower, the sufficiency of collateral, and lack of timely payment. Management has a policy of requesting and reviewing periodic financial reporting from its commercial loan customers and verifies existence of collateral and its value.

An analysis of credit quality indicators at June 30, 2011 and December 31, 2010 follows (000s omitted):

June 30, 2011

Commercial Loans	Commercial		Commercial		Commercial		Commercial
Credit Quality	Real Estate		Term		LOC		Construction
1 – pass	$	—	$	—	$	—	$	—
2 – pass		337		—		514		—
3 – pass		18,502		4,041		4,472		—
4 – pass		37,223		5,259		4,426		1,609
5 – special mention		4,237		2,906		1,003		2,540
6 – substandard		1,434		60		—		—
7 – doubtful		—		—		—		—
8 – loss		—		—		—		—
	$	61,733	$	12,266	$	10,415	$	4,149

Consumer Loans	Home Equity		Residential		Home Equity		Consumer		Consumer
Credit Quality	LOC		Mortgage		Term		Installment		LOC
Pass	$	8,711	$	645	$	115	$	518	$	518
Special mention		343		—		—		27		—
Substandard		717		—		—		—		—
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
	$	9,771	$	645	$	115	$	545	$	518

     December 31, 2010

Commercial Loans	Commercial		Commercial		Commercial		Commercial
Credit Quality	Real Estate		Term		LOC		Construction
1 – pass	$	—	$	—	$	—	$	—
2 – pass		392		—		—		—
3 – pass		16,845		3,994		4,416		—
4 – pass		40,348		6,265		5,071		1,250
5 – special mention		2,994		1,249		1,574		774
6 – substandard		1,441		857		610		—
7 - doubtful		—		—		—		—
8 - loss		—		—		—		—
	$	62,020	$	12,365	$	11,671	$	2,024

Consumer Loans	Home Equity		Residential		Home Equity		Consumer		Consumer
Credit Quality	LOC		Mortgage		Term		Installment		LOC
Pass	$	8,808	$	1,035	$	118	$	335	$	673
Special mention		344		—		—		33		—
Substandard		1,014		—		—		—		—
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
	$	10,166	$	1,035	$	118	$	368	$	673

A loan is considered a troubled debt restructure (“TDR”) if the Bank for economic or legal reasons related to the borrower’s financial condition grants a concession to the debtor that the Bank would not otherwise consider. TDRs represent loans where the original terms of the agreement have been modified to provide relief to the borrower and are individually evaluated for impairment. The Bank had one loan classified as a TDR at June 30, 2011 and December 31, 2010. The loan continues to perform according to the modified contractual terms.

Information regarding modified loans as of June 30, 2011 and December 31 (000s omitted):

June 30, 2011

			Pre-		Post-
	Number of		Modification		Modification
	Contracts		Investment		Investment
Trouble Debt Restructuring
Commercial Real Estate		1	$	699	$	699
Commercial Term		—		—		—
Commercial LOC		—		—		—
Construction		—		—		—
Home Equity		—		—		—
Residential Mortgage		—		—		—
Consumer		—		—		—
December 31, 2010
Trouble Debt Restructuring
Commercial Real Estate		1	$	699	$	699
Commercial Term		—		—		—
Commercial LOC		—		—		—
Construction		—		—		—
Home Equity		—		—		—
Residential Mortgage		—		—		—
Consumer		—		—		—

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all principal and interest payments according to the contractual terms of the loan agreement. Characteristics considered by management in determining impairment include delinquency status, collateral value, and known factors adversely affecting the ability of the borrower to satisfy the terms of the agreement. When an individual loan is classified as impaired, the Corporation measures impairment using (1) the present value of expected cash flows discounted at the loans effective interest rate, (2) the loans observable market price, or (3) the fair value of the collateral. The method used is determined on a loan by loan basis, except for a collateral dependent loan. All collateral dependent loans are required to be measured using the fair value of collateral method. If the value of an impaired loan is less than the recorded investment in the loan an impairment reserve is recognized. All modified loans are considered impaired.

Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, except if modified and considered to be a troubled debt restructuring.

Information regarding impaired loans at June 30, 2011 and December 31, 2010 (000s omitted):

June 30, 2011

									Year to Date
	Recorded		Unpaid				Average		Interest
	Investment		Principal		Allowance		Investment		Recognized
Impaired loans
No related allowance recorded:
Home Equity Line of Credit	$	—	$	—	$	—	$	—	$	—
Allowance recorded:
Commercial Line of Credit		—		—		—		—		—
Commercial Real Estate		699		699		56		699		18
Home Equity Line of Credit		590		590		212		590		15
Total:
Commercial	$	699	$	699	$	56	$	699	$	18
Home Equity	$	590	$	590	$	212	$	590	$	15
December 31, 2010
Impaired loans
No related allowance recorded:
Home Equity Line of Credit	$	298	$	298	$	—	$	256	$	—
Allowance recorded:
Commercial Line of Credit		1,407		1,407		17		1,418		99
Commercial Real Estate		699		699		8		117		7
Home Equity Line of Credit		590		590		212		197		10
Total:
Commercial	$	2,107	$	2,107	$	25	$	1,535	$	106
Home Equity	$	887	$	887	$	212	$	453	$	10

As of June 30, 2011 and December 31, 2010, loans totaling approximately $1,926,000 and $298,000 were more than 30 days past due. At June 30, 2011, $1,918,000 in loans were classified more than 30 days past due to maturity, and the Bank anticipates renewing those loans in the third quarter of 2011. Nonperforming loans, which represents non-accruing loans and loans past due 90 days or more and still accruing interest, were $0 and $298,000 at June 30, 2011 and December 31, 2010. The nonperforming loan at December 31, 2010 represents a home equity loan in the process of foreclosure. Loans are placed in non-accrual status when, in the opinion of management, uncertainty exists as to the ultimate collection of principal and interest. Commercial loans are reported as being in non-accrual status if: (a) they are maintained on a cash basis because of deterioration in the financial position of the borrower, (b) payment in full of interest or principal is not expected, or (c) principal or interest has been in default for a period of 90 days or more. If it can be documented that the loan obligation is both well secured and in the process of collection, the loan may remain on accrual status. However, if the loan is not brought current before becoming 120 days past due, the loan is reported as non-accrual. A non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid, when it otherwise becomes well secured, or is in the process of collection.

Information regarding past due loans at June 30, 2011 and December 31, 2010 follows (000s omitted):

	Loans past due						Total				Total		Non-		>90 days
June 30, 2011	30 – 59		60 - 90		Over 90		Past Due		Current		Loans		Accrual		Accruing
Commercial real estate	$	—	$	1,140	$	—	$	1,140	$	60,593	$	61,733	$	—	$	—
Commercial term		—		—		—		—		12,266		12,266		—		—
Commercial LOC		—		—		—		—		10,415		10,415		—		—
Construction		—		778		—		778		3,371		4,149		—		—
Home equity LOC		—		—		—		—		9,771		9,771		—		—
Residential mortgage		—		—		—		—		645		645		—		—
Home equity term		—		—		—		—		115		115		—		—
Consumer installment		8		—		—		8		537		545		—		—
Consumer LOC		—		—		—		—		518		518		—		—
	$	8	$	1,918	$	—	$	1,926	$	98,231	$	100,157	$	—	$	—

	Loans past due						Total				Total		Non-		>90 days
December 31, 2010	30 – 59		60 - 90		Over 90		Past Due		Current		Loans		Accrual		Accruing
Commercial real estate	$	—	$	—	$	—	$	—	$	62,020	$	62,020	$	—	$	—
Commercial term		—		—		—		—		12,365		12,365		—		—
Commercial LOC		—		—		—		—		11,671		11,671		—		—
Construction		—		—		—		—		2,024		2,024		—		—
Home equity LOC		—		—		298		298		9,868		10,166		298		—
Residential mortgage		—		—		—		—		1,035		1,035		—		—
Home equity term		—		—		—		—		118		118		—		—
Consumer installment		—		—		—		—		368		368		—		—
Consumer LOC		—		—		—		—		673		673		—		—
	$	—	$	—	$	298	$	298	$	100,142	$	100,440	$	298	$	—