LOANS RECEIVABLE

3 Months Ended

Mar. 31, 2015

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 4 – LOANS RECEIVABLE

A summary of loans receivable at March 31, 2015 and December 31, 2014 is as follows:

	March 31,		December 31,
(In thousands)	2015		2014

Real estate loans:
One-to-four family	$	177,874	$	180,739
Multi-family and commercial real estate		132,784		122,526
Construction and land development		3,531		3,415
Total real estate loans		314,189		306,680

Commercial business loans		24,353		25,801
Consumer loans:
Home equity		30,068		28,700
Other consumer		7,450		8,144
Total consumer loans		37,518		36,844
Total loans		376,060		369,325

Less:
Allowance for loan losses		5,951		6,023
Deferred loan origination fees, net		45		43
Loans receivable, net	$	370,064	$	363,259

The Bank’s lending activities are conducted principally in the Naugatuck Valley area of Connecticut. The Bank’s investment in loans includes both adjustable and fixed rate loans.

Credit quality of financing receivables

Management segregates the loan portfolio into portfolio segments which are defined as the level at which the Company develops and documents a systematic method for determining its allowance for loan losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.

The Company’s loan portfolio is segregated as follows:

One-to-four Family Owner Occupied Loans. This portfolio segment consists of the origination of first mortgage loans secured by one-to-four family owner occupied residential properties and residential construction loans to individuals to finance the construction of residential dwellings for personal use located in our market area. The Company has experienced a significant decrease in foreclosures on its owner occupied loan portfolio over the past year. Foreclosures are at relatively low levels. Management believes this is due mainly to its conservative underwriting and lending strategies which do not allow for high risk loans such as “Option ARM,” “sub-prime” or “Alt-A” loans.

Multi-family and Commercial Real Estate Loans. As described above, this portfolio grouping has been further disaggregated into loans secured by:

⋅

Investor owned one-to-four family and multi-family properties;

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Industrial and warehouse properties;

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Office buildings;

⋅

Retail properties; and

⋅

Special use properties.

Loans secured by these types of commercial real estate collateral generally have larger loan balances and more credit risk than owner occupied one-to-four family mortgage loans. The increased risk is the result of several factors, including the concentration of principal in a limited number of loans and borrowers, the impact of local and general economic conditions on the borrower’s ability to repay the loan, and the increased difficulty of evaluating and monitoring these types of loans.

Construction and Land Development Loans. This portfolio segment includes commercial construction loans for commercial development projects, including condominiums, apartment buildings, and single family subdivisions as well as office buildings, retail and other income producing properties and land loans, which are loans made with land as security. Construction and land development financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment. Construction loans also expose the Company to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties, which may cause some borrowers to be unable to continue with debt service which exposes the Company to greater risk of non-payment and loss. Additionally, economic factors such as the decline of property values may have an adverse affect on the ability of the borrower to sell the property.

Commercial Business Loans. This portfolio segment includes commercial business loans secured by real estate, assignments of corporate assets, and personal guarantees of the business owners. Commercial business loans generally have higher interest rates and shorter terms than other loans, but they also may involve higher average balances, increased difficulty of loan monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business.

Real Estate Secured Consumer Loans. This portfolio segment includes home equity loans and home equity lines of credit secured by owner occupied one-to-four family residential properties. Loans of this type are written at a maximum of 75% of the appraised value of the property and we require that we have no lower than a second lien position on the property. These loans are written at a higher interest rate and a shorter term than mortgage loans. The Company has experienced a low level of foreclosure in this type of loan during recent periods. These loans can be affected by economic conditions and the values of the underlying properties.

Other Consumer Loans. This portfolio segment includes loans secured by passbook or certificate accounts, or automobiles, as well as unsecured personal loans and overdraft lines of credit. This type of loan may entail greater risk than do residential mortgage loans, particularly in the case of loans that are unsecured or secured by assets that depreciate rapidly.

Credit Quality Indicators

The Company’s policies provide for the classification of loans into the following categories: pass (1 - 5); special mention (6); substandard-accruing (7); substandard-nonaccruing (8); doubtful (9); and loss (10). In June 2013, the Company added substandard-accruing as an additional risk grade to further delineate the Bank’s risk profile in the previous substandard category. Consistent with regulatory guidelines, loans that are considered to be of lesser quality are considered adversely classified as substandard, doubtful or loss. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those loans characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans (or portions of loans) classified as loss are those considered uncollectible. The Company generally charges off loans or portions of loans as soon as they are considered to be uncollectible and of little value. Loans that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as special mention. When loans are classified as special mention, substandard or doubtful, management focuses increased monitoring and attention on these loans in assessing the credit risk and specific allowance requirements for these loans.

The following tables are a summary of the loan portfolio credit quality indicators, by loan class, as of March 31, 2015 and December 31, 2014:

	Credit Risk Profile by Internally Assigned Grade:
March 31, 2015	One-to-Four Family		Multi-Family and Commercial Real Estate		Construction and Land Development		Commercial Business Loans		Consumer Loans		Total
(In thousands)
Risk Rating:
Pass	$	174,397	$	126,448	$	2,069	$	22,183	$	36,982	$	362,079
Special Mention		725		3,893		819		615		206		6,258
Substandard:
- Accruing		19		1,477		-		799		143		2,438
- Nonaccruing		2,733		966		643		756		187		5,285
Subtotal - substandard		2,752		2,443		643		1,555		330		7,723
Doubtful		-		-		-		-		-		-
Total	$	177,874	$	132,784	$	3,531	$	24,353	$	37,518	$	376,060

	Multi-Family and Commercial Real Estate
	Credit Risk Profile by Internally Assigned Grade:
March 31, 2015	Investor Owned One-to-Four family and multi-family		Industrial and Warehouse Properties		Office Buildings		Retail Properties		Special Use Properties		Total Multi-Family and Commercial Real Estate
(In thousands)
Risk Rating:
Pass	$	28,303	$	23,260	$	23,655	$	17,157	$	34,073	$	126,448
Special Mention		897		1,135		34		398		1,429		3,893
Substandard:
- Accruing		249		-		98		148		982		1,477
- Nonaccruing		389		21		546		-		10		966
Subtotal - substandard		638		21		644		148		992		2,443
Doubtful		-		-		-		-		-		-
Total	$	29,838	$	24,416	$	24,333	$	17,703	$	36,494	$	132,784

	Credit Risk Profile by Internally Assigned Grade:
December 31, 2014	One-to-Four Family		Multi-Family and Commercial Real Estate		Construction and Land Development		Commercial Business Loans		Consumer Loans		Total
(In thousands)
Risk Rating:
Pass	$	177,598	$	116,020	$	1,835	$	23,535	$	36,348	$	355,336
Special Mention		731		4,040		853		707		207		6,538
Substandard:
- Accruing		19		1,498		-		755		74		2,346
- Nonaccruing		2,391		968		727		804		215		5,105
Subtotal - substandard		2,410		2,466		727		1,559		289		7,451
Doubtful		-		-		-		-		-		-
Total	$	180,739	$	122,526	$	3,415	$	25,801	$	36,844	$	369,325

	Multi-Family and Commercial Real Estate
	Credit Risk Profile by Internally Assigned Grade:
December 31, 2014	Investor Owned One-to-Four family and multi-family		Industrial and Warehouse Properties		Office Buildings		Retail Properties		Special Use Properties		Total Multi-Family and Commercial Real Estate
(In thousands)
Risk Rating:
Pass	$	23,793	$	23,707	$	23,503	$	17,092	$	27,925	$	116,020
Special Mention		1,027		1,145		319		104		1,445		4,040
Substandard:
- Accruing		252		-		100		150		996		1,498
- Nonaccruing		389		23		546		-		10		968
Subtotal - substandard		641		23		646		150		1,006		2,466
Doubtful		-		-		-		-		-		-
Total	$	25,461	$	24,875	$	24,468	$	17,346	$	30,376	$	122,526

Delinquencies

When a loan is 15 days past due, the Company sends the borrower a late notice. The Company also contacts the borrower by phone if the delinquency is not corrected promptly after the notice has been sent. When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of the delinquency and attempts to contact the borrower personally to determine the reason for the delinquency in order to ensure that the borrower understands the terms of the loan and the importance of making payments on or before the due date. If necessary, subsequent delinquency notices are issued and the account will be monitored on a regular basis thereafter. By the 90th day of delinquency, the Company will send the borrower a final demand for payment and may recommend foreclosure. A summary report of all loans 30 days or more past due is provided to the Board of Directors of the Company each month.

Loans, including troubled debt restructurings (“TDRs”), are automatically placed on nonaccrual status when payment of principal or interest is more than 90 days delinquent. Loans may also be placed on nonaccrual status if collection of principal or interest in full, or in part, is in doubt or if the loan has been restructured. When loans are placed on nonaccrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if unpaid principal and interest are repaid so that the loan’s payment status is current for a reasonable period of time (usually six consecutive months) to establish a reliable assessment of collectability.

The following tables set forth certain information with respect to our loan portfolio delinquencies, by loan class, as of March 31, 2015 and December 31, 2014:

	Delinquencies
													Carrying
					Greater								Amount >
	31-60 Days		61-90 Days		Than		Total Past						90 Days and
As of March 31, 2015	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing
(In thousands)
Real estate loans
One-to-four family	$	1,157	$	159	$	1,268	$	2,584	$	175,290	$	177,874	$	-
Construction and land development		-		-		596		596		2,935		3,531		-
Multi-family and commercial real estate:
Investor owned one-to-four family and multi-family		-		-		389		389		29,449		29,838		-
Industrial and Warehouse		-		-		-		-		24,416		24,416		-
Office buildings		878		-		206		1,084		23,249		24,333		-
Retail properties		148		-		-		148		17,555		17,703		-
Special use properties		233		-		-		233		36,261		36,494		-
Subtotal Multi-family and commercial real estate		1,259		-		595		1,854		130,930		132,784		-
Commercial business loans		44		-		582		626		23,727		24,353		-
Consumer loans:
Home equity loans		231		98		77		406		29,662		30,068		-
Other consumer loans		3		1		-		4		7,446		7,450		-
Subtotal Consumer		234		99		77		410		37,108		37,518		-
Total	$	2,694	$	258	$	3,118	$	6,070	$	369,990	$	376,060	$	-

	Delinquencies
													Carrying
					Greater								Amount >
	31-60 Days		61-90 Days		Than		Total Past						90 Days and
As of December 31, 2014	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing
(In thousands)
Real estate loans
One-to-four family	$	349	$	153	$	1,594	$	2,096	$	178,643	$	180,739	$	-
Construction and land development		-		-		726		726		2,689		3,415		-
Multi-family and commercial real estate:
Investor owned one-to-four family and multi-family		-		-		389		389		25,072		25,461		-
Industrial and Warehouse		-		-		-		-		24,875		24,875		-
Office buildings		-		-		206		206		24,262		24,468		-
Retail properties		-		-		-		-		17,346		17,346		-
Special use properties		-		-		-		-		30,376		30,376		-
Subtotal Multi-family and commercial real estate		-		-		595		595		121,931		122,526		-
Commercial business loans		972		-		703		1,675		24,126		25,801		-
Consumer loans:
Home equity loans		222		97		28		347		28,353		28,700		-
Other consumer loans		6		-		-		6		8,138		8,144		-
Subtotal Consumer		228		97		28		353		36,491		36,844		-
Total	$	1,549	$	250	$	3,646	$	5,445	$	363,880	$	369,325	$	-

Impaired loans and nonperforming assets

The following table sets forth certain information with respect to our nonperforming assets as of March 31, 2015 and December 31, 2014:

	March 31,			December 31,
	2015			2014

Nonperforming Assets	(Dollars in thousands)
Nonaccrual loans:
One-to-four family	$	1,644		$	1,414
Multi-family and commercial real estate		371			375
Construction and land development		643			726
Commercial business loans		756			804
Consumer loans		187			187
Total		3,601			3,506
Troubled debt restructurings - non-accrual		1,684			1,600
Subtotal nonperforming loans		5,285			5,106
Foreclosed real estate		100			335
Total nonperforming assets	$	5,385		$	5,441

Total nonperforming loans to total loans		1.41	%		1.38	%

Total nonperforming loans to total assets		1.04	%		1.03	%

Total nonperforming assets to total assets		1.06	%		1.10	%

Nonperforming loans (defined as nonaccrual loans and nonperforming TDRs) totaled $5.3 million at March 31, 2015 compared to $5.1 million at December 31, 2014, an increase of $179,000, or 3.5%. The amount of income that was contractually due but not recognized on nonperforming loans totaled $62,000 and $61,000 for the three months ended March 31, 2015 and March 31, 2014, respectively.

At March 31, 2015, the Company had 34 loans on nonaccrual status of which 19 were less than 90 days past due; however, these loans were placed on nonaccrual status due to the uncertainty of their collectability.

At December 31, 2014, the Company had 34 loans on nonaccrual status of which 17 were less than 90 days past due; however, these loans were placed on nonaccrual status due to the uncertainty of their collectability.

The Company accounts for impaired loans in accordance with GAAP. An impaired loan generally is one for which it is probable, based on current information, that the Company will not collect all the amounts due under the contractual terms of the loan. All impaired loans are individually evaluated for impairment at least quarterly. As a result of this impairment evaluation, the Company provides a specific reserve for, or charges off, that portion of the asset that is deemed uncollectible.

The following tables summarize impaired loans by portfolio segment as of March 31, 2015 and December 31, 2014:

As of March 31, 2015	Recorded Investment with No Specific Valuation Allowance		Recorded Investment with Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance

	(In thousands)
Real estate loans
One-to-four family	$	2,901	$	1,534	$	4,435	$	4,772	$	62
Construction and land development		643		-		643		940		-
Multi-family and commercial real estate:
Investor owned one-to-four family and multi-family properties		389		-		389		395		-
Industrial and warehouse properties		21		-		21		26		-
Office buildings		546		-		546		750		-
Retail properties		-		-		-		-		-
Special use properties		10		-		10		24		-
Subtotal		966		-		966		1,195		-
Commercial business loans		740		185		925		987		3
Consumer loans		328		132		460		490		5
Total impaired loans	$	5,578	$	1,851	$	7,429	$	8,384	$	70

As of December 31, 2014	Recorded Investment with No Specific Valuation Allowance		Recorded Investment with Specific Valuation Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Specific Valuation Allowance

	(In thousands)
Real estate loans
One-to-four family	$	2,793	$	1,536	$	4,329	$	4,555	$	59
Construction and land development		685		-		685		1,022		-
Multi-family and commercial real estate:
Investor owned one-to-four family and multi-family properties		389		-		389		395		-
Industrial and warehouse properties		22		-		22		28		-
Office buildings		546		-		546		750		-
Retail properties		-		-		-		-		-
Special use properties		10		-		10		24		-
Subtotal		967		-		967		1,197		-
Commercial business loans		759		192		951		1,042		4
Consumer loans		385		133		518		521		9
Total impaired loans	$	5,589	$	1,861	$	7,450	$	8,337	$	72

In the above table, the unpaid contractual principal balance represents the aggregate amounts legally owed to the Bank under the terms of the borrowers’ loan agreements. The recorded investment amounts shown above represent the unpaid contractual principal balance owed to the Bank less any amounts paid by borrowers on nonaccrual loans which were recognized as principal curtailments. On those nonaccrual loans accounted for under the cost recovery method, the Bank applies any borrower payments first against the principal balance of the loan and once the entire principal balance has been recovered, any subsequent payments are recognized as interest income.

The following table relates to interest income recognized by segment of impaired loans for the three months ended March 31, 2015 and 2014:

	Three Months Ended March 31,
	2015				2014
	Average Recorded Investments		Interest Income Recognized		Average Recorded Investments		Interest Income Recognized

Real estate loans	(In thousands)
One-to four-family	$	4,329	$	36	$	6,896	$	53
Construction		685		-		1,715		1
Multi-family and commercial real estate		967		-		3,479		17
Commercial business loans		951		3		1,931		22
Consumer loans		476		4		539		5
Total	$	7,408	$	43	$	14,560	$	98

Interest payments received on nonaccrual loans are accounted for on the cash-basis method or the cost recovery method until qualifying for return to accrual status. Under the cost recovery method, the interest payment is applied to the principal balance of the loan. The table above shows the interest income recognized on nonaccrual loans and on performing TDR loans using the cash-basis method. For the three month periods ended March 31, 2015 and 2014, the amount of interest payments applied to principal under the cost recovery method was $9,000 and $61,000, respectively.

Troubled Debt Restructured Loans

A TDR is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to a borrower that it would not otherwise consider. TDRs are considered impaired and are separately measured for impairment, whether on accrual or nonaccrual status.

Loan modifications are generally granted at the request of the individual borrower and may include concessions such as reduction in interest rates, changes in payments, maturity date extensions, or debt forgiveness/forbearance. TDRs are loans for which the original contractual terms of the loans have been modified and both of the following conditions exist: (i) the restructuring constitutes a concession (including reduction of interest rates or extension of maturity dates); and (ii) the borrower is either experiencing financial difficulties or absent such concessions, it is probable the borrower would experience financial difficulty complying with the original terms of the loan. Loans are not classified as TDRs when the modification is short-term or results in only an insignificant delay or shortfall in the payments to be received. The Company’s loan modifications are determined on a case-by-case basis in connection with ongoing loan collection processes.

The recorded investment balance of performing and nonperforming TDRs as of March 31, 2015 and December 31, 2014 are as follows:

(In thousands)	As of March 31, 2015		As of December 31, 2014
Aggregate recorded investment of impaired loans performing under
terms modified through a troubled debt restructuring:
Performing (1)	$	2,981	$	2,549
Nonperforming (2)		768		1,256
Total	$	3,749	$	3,805

(1)

Of the $2,981,000 in TDRs which were performing under the modified terms of their agreements at March 31, 2015, there were $967,000 in TDRs that remain on nonaccrual status because these TDRs have not yet demonstrated the requisite period of sustained performance. The combination of the $967,000 performing TDRs and the $717,000 nonperforming TDRs on nonaccrual status at March 31, 2015 equal the $1,684,000 in TDRs that were on nonaccrual status at March 31, 2015.

Of the $2,549,000 in TDRs which were performing under the modified terms of their agreements at December 31, 2014, there were $2,164,000 in TDRs that remain on nonaccrual status because these TDRs have not yet demonstrated the requisite period of sustained performance. The combination of the $385,000 performing TDRs and the $1,215,000 nonperforming TDRs on nonaccrual status at December 31, 2014 equal the $1,600,000 in TDRs that were on nonaccrual status at December 31, 2014.

(2)

Of the $768,000 in TDRs that were not performing under the modified terms of their agreements at March 31, 2015, all of these loans, except for two loans in the amount of $52,000, were on nonaccrual status.

All of the $1,256,000 in TDRs which were not performing under the modified terms of their agreements at December 31, 2014, except for one loan in the amount of $40,000, were on nonaccrual status.

There were no concessions granted during the three months ended March 31, 2015.

As illustrated in the table below, during the three months ended March 31, 2014, the following concessions were made on five loans totaling $248,000 (measured as a percentage of loan balances on TDRs):

Deferral of principal payments for 48.4% (1 loan for $120,000);

Reduced interest rate for 12.1% (3 loans for $30,000); and

Extension of payment terms for 39.5% (1 loan for $98,000).

In cases where there was more than one concession granted, the modification was classified by the more dominant concession.

The following tables present a breakdown of the type of concessions made by loan class during the three months ended March 31, 2014:

	For the Three Months Ended March 31, 2014
(Dollars in thousands)	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		%
Below market interest rate:
Commercial business loans		3	$	30	$	30		12.1	%
Subtotal		3		30		30		12.1	%

Extended payment terms:
Commercial business loans		1		98		98		39.5	%
Subtotal		1		98		98		39.5	%

Principal payments deferred:
Real estate loans:
One-to-four family		1		120		120		48.4	%
Subtotal		1		120		120		48.4	%

Grand Totals		5	$	248	$	248		100.0	%

The majority of the Bank’s TDRs are a result of principal payment deferrals to troubled credits which have already been adversely classified. The Bank grants such consessions to reassess the borrower’s financial status and to develop a plan for repayment. These modifications did not have a material effect on the Company or the Bank.

The financial effects of each modification will vary based on the specific restructure. For some of the Bank’s TDRs, the loans were interest-only with a balloon payment at maturity. If the interest rate is not adjusted and the terms are consistent with the market, the Bank might not experience any loss associated with the restructure. If, however, the restructure involves forbearance agreements or interest rate modifications, the Bank might not collect all the principal and interest based on the original contractual terms. The Bank applies its procedures for placing TDRs on accrual or nonaccrual status using the same general guidance as for loans. The Bank estimates the necessary allowance for loan losses on TDRs using the same guidance as for other impaired loans.

There were no TDRs that had been modified during the previous twelve months ended March 31, 2015 that subsequently defaulted or were charged off during the three months ended March 31, 2015.

Allowance for Loan Losses

The allowance for loan losses (“ALLL”) is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan portfolio.

The allowance for loan losses is established through a provision for loan losses charged to operations. Management periodically reviews the allowance for loan losses in order to identify those known and inherent losses and to assess the overall collection probability for the loan portfolio. The evaluation process begins with an individual evaluation of loans that are considered impaired. For these loans, an allowance is established based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or for loans that are considered collateral dependent, the fair value of the collateral.

All other loans are segregated into segments based on similar risk factors. Each of these groups is then evaluated based on several factors to estimate credit losses. Management will determine for each category of loans with similar risk characteristics the historical loss rate. Historical loss rates provide a reasonable starting point for the Bank’s analysis; however, this analysis and loss trends do not form a sufficient basis, by themselves, to determine the appropriate level of the loan loss allowance. Management also considers qualitative and environmental factors for each loan segment that are likely to impact, directly or indirectly, the inherent loss exposure of the loan portfolio. These factors include but are not limited to: changes in the amount and severity of delinquencies, non-accrual and adversely classified loans; changes in local, regional, and national economic conditions that will affect the collectability of the portfolio; changes in the nature and volume of loans in the portfolio; changes in concentrations of credit, lending area, industry concentrations, or types of borrowers; changes in lending policies, procedures, competition, management, portfolio mix, competition, pricing, loan to value trends, extension and modification requests; and loan quality trends. As of June 30, 2013, management added factors to more granularly assess loan quality trends, specifically, the changes and the trend in charge-offs and recoveries, changes in volume of Watch and Special Mention loans and the changes in the quality of the Bank’s loan review system. This analysis establishes factors that are applied to each of the segregated groups of loans to determine an appropriate level of loan loss allowance.

The determination of the allowance for loan losses is significantly affected by management’s judgment and uncertainties, and there is likelihood that different amounts would be reported under different conditions or assumptions. The OCC, as an integral part of its examination process, periodically reviews the allowance for loan losses and may require the Company to make additional provisions for estimated loan losses based upon judgments different from those of management.

The allowance generally consists of specific (or allocated) and general components. The specific component relates to loans that are recognized as impaired. For such impaired loans, an allowance is established when the discounted cash flows (or observable market price or collateral value, if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors.

The ALLL balance decreased from $6.02 million at December 31, 2014 to $5.95 million at March 31, 2015, a decrease of $72,000, or 1.2%. The decrease was primarily the result of net charge-offs of $72,000 in the three months ended March 31, 2015. The decrease in the ALLL was consistent with the stability shown in the Bank’s asset quality trends during this three month period. The Bank’s nonperforming loans increased $179,000, or 3.5%, for the three months ended March 31, 2015. The Bank’s adversely classified loans increased $272,000, or 3.7%, for the three months ended March 31, 2015.

The Company continues to monitor and modify its allowance for loan losses as conditions dictate. No assurances can be given that the level of allowance for loan losses will cover all of the inherent losses on the loans or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance for loan losses.

The following tables set forth the balance of and transactions in the allowance for loan losses at March 31, 2015, December 31, 2014 and March 31, 2014, by portfolio segment, disaggregated by impairment methodology, which is then further segregated by loans evaluated for impairment individually and collectively.

As of and for the Three Months	One-to-Four Family		Multi-Family and Commercial Real Estate		Construction and Land Development		Commercial Business Loans		Consumer Loans		Total
Ended March 31, 2015
(In thousands)
Allowance for loan losses:
Beginning balance	$	1,633	$	3,097	$	414	$	592	$	287	$	6,023
Provision for loan losses		(198)		143		84		(94)		65		-
Charge-offs		(15)		-		-		(9)		(91)		(115)
Recoveries		-		-		16		26		1		43
Balance at March 31, 2015	$	1,420	$	3,240	$	514	$	515	$	262	$	5,951
Allowance related to loans:
Individually evaluated for impairment	$	62	$	-	$	-	$	3	$	5	$	70
Collectively evaluated for impairment		1,358		3,240		514		512		257		5,881
Total allowance	$	1,420	$	3,240	$	514	$	515	$	262	$	5,951

Ending loan balance individually evaluated for impairment	$	4,435	$	966	$	643	$	925	$	460	$	7,429
Ending loan balance collectively evaluated for impairment		173,439		131,818		2,888		23,428		37,058		368,631
Total loans	$	177,874	$	132,784	$	3,531	$	24,353	$	37,518	$	376,060

	Multi-Family and Commercial Real Estate
As of and for the Three Months	Investor One-to-Four Family and Multi-Family		Industrial and Warehouse Properties		Office Buildings		Retail Properties		Special Use Properties		Total Multi-Family and Commercial Real Estate
Ended March 31, 2015
(In thousands)
Allowance for loan losses:
Beginning balance	$	509	$	597	$	352	$	548	$	1,091	$	3,097
Provision for loan losses		(66)		(8)		(7)		31		193		143
Charge-offs		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-
Balance at March 31, 2015	$	443	$	589	$	345	$	579	$	1,284	$	3,240
Allowance related to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		443		589		345		579		1,284		3,240
Total allowance	$	443	$	589	$	345	$	579	$	1,284	$	3,240

Ending loan balance individually evaluated for impairment	$	389	$	21	$	546	$	-	$	10	$	966
Ending loan balance collectively evaluated for impairment		29,449		24,395		23,787		17,703		36,484		131,818
Total loans	$	29,838	$	24,416	$	24,333	$	17,703	$	36,494	$	132,784

As of and for the Three Months	One-to-Four Family		Multi-Family and Commercial Real Estate		Construction and Land Development		Commercial Business Loans		Consumer Loans		Total
Ended March 31, 2014
(In thousands)
Allowance for loan losses:
Beginning balance	$	1,849	$	5,097	$	1,118	$	1,443	$	384	$	9,891
Provision for loan losses		117		177		84		(309)		(69)		-
Charge-offs		(32)		(12)		(102)		(36)		(2)		(184)
Recoveries		-		-		15		57		86		158
Balance at March 31, 2014	$	1,934	$	5,262	$	1,115	$	1,155	$	399	$	9,865
Allowance related to loans:
Individually evaluated for impairment	$	49	$	12	$	21	$	88	$	46	$	216
Collectively evaluated for impairment		1,885		5,250		1,094		1,067		353		9,649
Total allowance	$	1,934	$	5,262	$	1,115	$	1,155	$	399	$	9,865

Ending loan balance individually evaluated for impairment	$	6,790	$	2,872	$	1,584	$	1,283	$	499	$	13,028
Ending loan balance collectively evaluated for impairment		177,741		119,457		3,944		22,967		32,700		356,809
Total loans	$	184,531	$	122,329	$	5,528	$	24,250	$	33,199	$	369,837

	Multi-Family and Commercial Real Estate
As of and for the Three Months	Investor One-to-Four Family and Multi-Family		Industrial and Warehouse Properties		Office Buildings		Retail Properties		Special Use Properties		Total Multi-Family and Commercial Real Estate
Ended March 31, 2014
(In thousands)
Allowance for loan losses:
Beginning balance	$	515	$	1,034	$	563	$	856	$	2,129	$	5,097
Provision for loan losses		(59)		32		23		217		(36)		177
Charge-offs		-		-		-		-		(12)		(12)
Recoveries		-		-		-		-		-		-
Segment ending balance as of March 31, 2014	$	456	$	1,066	$	586	$	1,073	$	2,081	$	5,262
Allowance related to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	12	$	-	$	12
Collectively evaluated for impairment		456		1,066		586		1,061		2,081		5,250
Total allowance	$	456	$	1,066	$	586	$	1,073	$	2,081	$	5,262

Ending loan balance individually evaluated for impairment	$	1,154	$	29	$	206	$	377	$	1,106	$	2,872
Ending loan balance collectively evaluated for impairment		15,875		29,596		20,725		22,906		30,355		119,457
Total loans	$	17,029	$	29,625	$	20,931	$	23,283	$	31,461	$	122,329

As of and for the Year	One-to-Four Family		Multi-Family and Commercial Real Estate		Construction and Land Development		Commercial Business Loans		Consumer Loans		Total
Ended December 31, 2014
(In thousands)
Allowance related to loans:
Individually evaluated for impairment	$	59	$	-	$	-	$	4	$	9	$	72
Collectively evaluated for impairment		1,574		3,097		414		588		278		5,951
Total allowance	$	1,633	$	3,097	$	414	$	592	$	287	$	6,023

Ending loan balance individually evaluated for impairment	$	4,223	$	969	$	726	$	978	$	492	$	7,388
Ending loan balance collectively evaluated for impairment		176,516		121,557		2,689		24,823		36,352		361,937
Total loans	$	180,739	$	122,526	$	3,415	$	25,801	$	36,844	$	369,325

	Multi-Family and Commercial Real Estate
As of and for the Year	Investor One-to-Four Family and Multi-Family		Industrial and Warehouse Properties		Office Buildings		Retail Properties		Special Use Properties		Total Multi-Family and Commercial Real Estate
Ended December 31, 2014
(In thousands)
Allowance related to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		509		597		352		548		1,091		3,097
Total allowance	$	509	$	597	$	352	$	548	$	1,091	$	3,097

Ending loan balance individually evaluated for impairment	$	389	$	23	$	546	$	-	$	11	$	969
Ending loan balance collectively evaluated for impairment		25,072		24,852		23,922		17,346		30,365		121,557
Total loans	$	25,461	$	24,875	$	24,468	$	17,346	$	30,376	$	122,526

The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Our banking regulators, as an integral part of their examination process, periodically review our allowance for loan losses. The examination may require us to make additional provisions for loan losses based on judgments different from ours. The Company also periodically engages an independent consultant to review our credit risk grading process and the risk grades on selected portfolio segments as well as the methodology, analysis and adequacy of the allowance for loan and lease losses.

Although we believe that we use the best information available to determine the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to increase our allowance for loan losses. In addition, because further events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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