Loans and Servicing

12 Months Ended

Dec. 31, 2014

LOANS AND SERVICING

LOANS AND SERVICING

6.LOANS AND SERVICING

Loans

A summary of loans is as follows:

	December 31,
	2014			2013
	(In thousands)
Residential loans:
One- to four-family	$	84,199		$	92,450
Home equity loans and lines of credit	16,499			15,399
Total residential mortgage loans	100,698			107,849
Commercial loans:
One- to four-family investment property	8,345			11,089
Multi-family real estate	15,020			14,462
Commercial real estate	62,227			54,272
Commercial business	17,838			16,681
Total commercial loans	103,430			96,504
Construction loans:
One- to four-family	13,056			9,848
Multi-family	10,842			7,304
Non-residential	4,828			3,955
Total construction loans	28,726			21,107
Consumer	289			408
Total loans	233,143			225,868
Other items:
Net deferred loan costs	379			440
Allowance for loan losses	(2,229		)	(2,396		)
Total loans, net	$	231,293		$	223,912

Information pertaining to the allowance for loan losses at and for the year ended December 31, 2014 is as follows:

	Residential						Commercial										Construction
	One- to four- family			Home equity loans and lines of credit			One- to four- family investment property			Multi-family real estate		Commercial real estate			Commercial business		One- to four- family			Multi-family		Non- residential		Consumer			Unallocated			Total
	(In thousands)
Allowance for loan losses
Beginning Balance	$	284		$	274		$	61		$	108	$	1,056		$	291	$	133		$	66	$	63	$	15		$	45		$	2,396
Charge-offs	—			(14		)	—			—		(248		)	—		—			—		—		(7		)	—			(269		)
Recoveries	—			1			—			—		—			—		—			—		—		3			—			4
(Benefit) provision	(11		)	(12		)	(15		)	5		135			20		(16		)	31		14		(8		)	(45		)	98
Ending Balance	$	273		$	249		$	46		$	113	$	943		$	311	$	117		$	97	$	77	$	3		$	—		$	2,229
Ending balance:
individually evaluated for impairment	$	7		$	—		$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	7
Ending balance:
collectively evaluated for impairment	$	266		$	249		$	46		$	113	$	943		$	311	$	117		$	97	$	77	$	3		$	—		$	2,222
Loans
Ending Balance	$	84,199		$	16,499		$	8,345		$	15,020	$	62,227		$	17,838	$	13,056		$	10,842	$	4,828	$	289		$	—		$	233,143
Ending balance:
individually evaluated for impairment	$	317		$	27		$	—		$	—	$	295		$	—	$	—		$	—	$	—	$	—		$	—		$	639
Ending balance:
collectively evaluated for impairment	$	83,882		$	16,472		$	8,345		$	15,020	$	61,932		$	17,838	$	13,056		$	10,842	$	4,828	$	289		$	—		$	232,504

Information pertaining to the allowance for loan losses at and for the year ended December 31, 2013 is as follows:

	Residential					Commercial									Construction
	One- to four-family			Home equity loans and lines of credit		One- to four-family investment property			Multi-family real estate		Commercial real estate		Commercial business		One- to four-family			Multi-family		Non-residential		Consumer			Unallocated		Total
													(In thousands)
Allowance for loan losses
Beginning Balance	$	378		$	254	$	62		$	40	$	668	$	159	$	149		$	34	$	25	$	11		$	—	$	1,780
Charge-offs	(130		)	—		—			—		—		—		—			—		—		(9		)	—		(139		)
Recoveries	43			—		—			—		—		—		—			—		—		4			—		47
Provision (benefit)	(7		)	20		(1		)	68		388		132		(16		)	32		38		9			45		708
Ending Balance	$	284		$	274	$	61		$	108	$	1,056	$	291	$	133		$	66	$	63	$	15		$	45	$	2,396
Ending balance:
individually evaluated for impairment	$	7		$	49	$	—		$	—	$	277	$	—	$	—		$	—	$	—	$	—		$	—	$	333
Ending balance:
collectively evaluated for impairment	$	277		$	225	$	61		$	108	$	779	$	291	$	133		$	66	$	63	$	15		$	45	$	2,063
Loans
Ending Balance	$	92,450		$	15,399	$	11,089		$	14,462	$	54,272	$	16,681	$	9,848		$	7,304	$	3,955	$	408		$	—	$	225,868
Ending balance:
individually evaluated for impairment	$	321		$	428	$	—		$	—	$	2,406	$	—	$	—		$	—	$	—	$	—		$	—	$	3,155
Ending balance:
collectively evaluated for impairment	$	92,129		$	14,971	$	11,089		$	14,462	$	51,866	$	16,681	$	9,848		$	7,304	$	3,955	$	408		$	—	$	222,713

The following is a summary of past-due and non-accrual loans at December 31, 2014:

	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
							(In thousands)
Residential loans:
One- to four-family	$	—	$	620	$	641	$	1,261	$	82,938	$	84,199	$	—	$	951
Home equity loans and lines of credit	38		13		—		51		16,448		16,499		—		—
Commercial loans:
One- to four-family investment property	—		—		—		—		8,345		8,345		—		—
Multi-family real estate	—		—		—		—		15,020		15,020		—		—
Commercial real estate	295		—		—		295		61,932		62,227		—		—
Commercial business	—		—		—		—		17,838		17,838		—		—
Construction loans:
One- to four-family	—		—		—		—		13,056		13,056		—		—
Multi-family	—		—		—		—		10,842		10,842		—		—
Non-residential	—		—		—		—		4,828		4,828		—		—
Consumer	—		—		2		2		287		289		—		2
Total	$	333	$	633	$	643	$	1,609	$	231,534	$	233,143	$	—	$	953

The following is a summary of past-due and non-accrual loans at December 31, 2013:

	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
Residential loans:
One- to four-family	$	—	$	245	$	—	$	245	$	92,205	$	92,450	$	—	$	—
Home equity loans and lines of credit	15		—		399		414		14,985		15,399		—		399
Commercial loans:
One- to four-family investment property	—		—		—		—		11,089		11,089		—		—
Multi-family real estate	—		—		—		—		14,462		14,462		—		—
Commercial real estate	—		267		—		267		54,005		54,272		—		—
Commercial business	—		—		—		—		16,681		16,681		—		—
Construction loans:
One- to four-family	—		—		—		—		9,848		9,848		—		—
Multi-family	—		—		—		—		7,304		7,304		—		—
Non-residential	—		—		—		—		3,955		3,955		—		—
Consumer	1		—		—		1		407		408		—		—
Total	$	16	$	512	$	399	$	927	$	224,941	$	225,868	$	—	$	399

The following is an analysis of impaired loans at December 31, 2014:

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit	27		27		—		28		1
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	295		295		—		298		18
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total impaired with no related allowance	$	322	$	322	$	—	$	326	$	19
Impaired loans with a valuation allowance
Residential loans:
One- to four-family	$	317	$	317	$	7	$	319	$	16
Home equity loans and lines of credit	—		—		—		123		—
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	—		—		—		426		8
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total with an allowance recorded	$	317	$	317	$	7	$	868	$	24

No additional funds are committed to be advanced in connection with impaired loans.

The following is an analysis of impaired loans at December 31, 2013:

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit	29		29		—		31		1
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	301		301		—		304		18
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total impaired with no related allowance	$	330	$	330	$	—	$	335	$	19
Impaired loans with a valuation allowance
Residential loans:
One- to four-family	$	321	$	321	$	7	$	379	$	13
Home equity loans and lines of credit	399		399		49		377		2
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	2,105		2,208		277		2,105		104
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total with an allowance recorded	$	2,825	$	2,928	$	333	$	2,861	$	119

There were no loan modifications made that resulted in the classification of a TDR during the year ended December 31, 2014.

The one loan modification classified as a TDR made during the year ended December 31, 2013 did not result in a material impact to the allowance for loan losses account.  The modification consolidated an adjustable rate one- to four-family residential loan and a fixed equity loan into a single fixed-rate one- to four-family residential loan.  In addition to the consolidation of the loans, $32,000 was advanced to the borrower.  There is no commitment to lend additional funds to the borrower whose loan was modified in a TDR as of December 31, 2013.

At December 31, 2013 the TDR entered into during the year ended December 31, 2013 was not in default of its modified terms.

The following tables present the Bank’s loans by risk rating:

	Residential				Commercial								Construction
	One- to four- family		Home equity loans and lines of credit		One- to four- family investment property		Multi-family real estate		Commercial real estate		Commercial business		One- to four- family		Multi-family		Non- residential		Consumer		Total
	(In thousands)
At December 31, 2014
Classification:
Not formally rated	$	82,311	$	16,499	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	287	$	99,097
Pass	—		—		8,345		15,020		62,227		17,838		13,056		10,842		4,828		—		132,156
Special mention	—		—		—		—		—		—		—		—		—		—		—
Substandard	1,888		—		—		—		—		—		—		—		—		2		1,890
Doubtful	—		—		—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—		—		—
Total loans	$	84,199	$	16,499	$	8,345	$	15,020	$	62,227	$	17,838	$	13,056	$	10,842	$	4,828	$	289	$	233,143
At December 31, 2013
Classification:
Not formally rated	$	92,129	$	15,000	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	408	$	107,537
Pass	—		—		11,089		14,462		51,900		16,681		9,848		7,304		3,955		—		115,239
Special mention	—		—		—		—		—		—		—		—		—		—		—
Substandard	321		399		—		—		2,372		—		—		—		—		—		3,092
Doubtful	—		—		—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—		—		—
Total loans	$	92,450	$	15,399	$	11,089	$	14,462	$	54,272	$	16,681	$	9,848	$	7,304	$	3,955	$	408	$	225,868

Credit Quality Information

The Bank utilizes a nine grade internal loan rating system for all commercial and construction loans as follows:

Loans rated 1 - 5:  Loans in these categories are considered “Pass” rated loans with low to average risk and are not formally rated.

Loans rated 6:  Loans in this category are considered “Special Mention.” These loans have risk profiles that are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 7:  Loans in this category are considered “Substandard.” These loans have a well defined weakness that jeopardizes the liquidation of the debt and is inadequately protected by the current sound worth and paying capacity of the borrower or pledged collateral. There is a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Loans rated 8:  Loans in this category are considered “Doubtful.” Loans classified as doubtful 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 9:  Loans in this category are considered a “Loss.” The loan has been determined to be uncollectible and the chance of loss is inevitable. Loans in this category will be charged-off.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on all commercial and construction loans.

Loans serviced for others and mortgage servicing rights

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others was $113,446,000 and $117,673,000 at December 31, 2014 and 2013, respectively.

The risks inherent in the mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of mortgage servicing rights was $1,335,000 and $1,361,000 at December 31, 2014 and 2013, respectively, and was determined using the moving average 10-year U.S. Treasury rate plus 5.0%, adjusted to reflect the current credit spreads and conditions in the market, as a discount rate. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a moving average of prepayment data published by the Securities Industry and Financial Markets Association, an independent third party proprietary analysis of prepayment rates embedded in liquid mortgage securities markets and modeled against the serviced loan portfolio by the independent third party valuation specialist.

The following summarizes mortgage servicing rights capitalized and amortized:

	Years Ended
	December 31,
	2014			2013
	(In thousands)
Mortgage servicing rights:
Balance at beginning of period	$	1,084		$	910
Additions	114			512
Amortization	(358		)	(338		)
Balance at end of period	840			1,084
Valuation allowance:
Balance at beginning of period	26			20
Additions	4			58
Reductions	(24		)	(52		)
Balance at end of period	6			26
Mortgage servicing assets, net	$	834		$	1,058
Fair value of mortgage servicing assets	$	1,335		$	1,361