(6)Loans and Servicing

Loans

A summary of loans is as follows:


	At				At
	March 31,				December 31,
	2017				2016
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Residential loans:
One- to four-family	$	92,869	32.97	%	$	90,190	32.27	%
Home equity loans and lines of credit		15,468	5.49			15,879	5.68
Total residential mortgage loans		108,337	38.46			106,069	37.95

Commercial loans:
One- to four-family investment property		14,400	5.11			13,081	4.68
Multi-family real estate		30,214	10.73			30,748	11.00
Commercial real estate		83,390	29.60			83,583	29.90
Commercial business		23,851	8.47			20,675	7.40
Total commercial loans		151,855	53.91			148,087	52.98

Construction loans:
One- to four-family		9,368	3.33			12,599	4.51
Multi-family		4,505	1.60			5,725	2.05
Non-residential		7,454	2.65			6,830	2.44
Total construction loans		21,327	7.58			25,154	9.00

Consumer		150	0.05			182	0.07

Total loans		281,669	100.00	%		279,492	100.00	%

Other items:
Net deferred loan costs		540				484
Allowance for loan losses		(2,642)				(2,605)

Total loans, net	$	279,567			$	277,371

An analysis of the allowance for loan losses for the three months ended March 31, 2017 and 2016 and at March 31, 2017 and December 31, 2016 is below. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		lines of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Unallocated		Total

	(In thousands)
Allowance for loan losses

Three Months Ended March 31, 2017
Beginning Balance	$	171	$	238	$	79	$	234	$	1,262	$	364	$	104	$	47	$	104	$	2	$	—	$	2,605
Charge-offs		—		—		—		—		—		—		—		—		—		(3)		—		(3)
Recoveries		—		1		—		—		—		—		—		—		—		—		—		1
Provision (benefit)		5		(7)		7		(4)		(3)		55		(22)		(10)		10		2		6		39
Ending Balance	$	176	$	232	$	86	$	230	$	1,259	$	419	$	82	$	37	$	114	$	1	$	6	$	2,642

Three Months Ended March 31, 2016
Beginning Balance	$	197	$	276	$	90	$	233	$	1,021	$	305	$	113	$	12	$	91	$	2	$	68	$	2,408
Charge-offs		—		—		—		—		—		—		—		—		—		—		—		—
Recoveries		—		1		—		—		—		—		—		—		—		—		—		1
(Benefit) provision		(17)		(17)		(7)		(7)		105		33		26		2		6		—		(50)		74
Ending Balance	$	180	$	260	$	83	$	226	$	1,126	$	338	$	139	$	14	$	97	$	2	$	18	$	2,483

At March 31, 2017

Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Collectively evaluated for impairment		176		232		79		230		1,259		419		82		37		114		1		6		2,635
	$	176	$	232	$	86	$	230	$	1,259	$	419	$	82	$	37	$	114	$	1	$	6	$	2,642

Loans
Individually evaluated for impairment	$	1,529	$	296	$	85	$	—	$	278	$	—	$	—	$	—	$	—	$	—	$	—	$	2,188
Collectively evaluated for impairment		91,340		15,172		14,315		30,214		83,112		23,851		9,368		4,505		7,454		150		—		279,481
	$	92,869	$	15,468	$	14,400	$	30,214	$	83,390	$	23,851	$	9,368	$	4,505	$	7,454	$	150	$	—	$	281,669

At December 31, 2016

Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Collectively evaluated for impairment		171		238		72		234		1,262		364		104		47		104		2		—		2,598
	$	171	$	238	$	79	$	234	$	1,262	$	364	$	104	$	47	$	104	$	2	$	—	$	2,605

Loans
Individually evaluated for impairment	$	1,543	$	143	$	85	$	—	$	281	$	—	$	—	$	—	$	—	$	—	$	—	$	2,052
Collectively evaluated for impairment		88,647		15,736		12,996		30,748		83,302		20,675		12,599		5,725		6,830		182		—		277,440
	$	90,190	$	15,879	$	13,081	$	30,748	$	83,583	$	20,675	$	12,599	$	5,725	$	6,830	$	182	$	—	$	279,492

The following is a summary of past-due and non-accrual loans at March 31, 2017 and December 31, 2016. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	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)
At March 31, 2017
Residential loans:
One- to four-family	$	—	$	—	$	742	$	742	$	92,127	$	92,869	$	—	$	742
Home equity loans and lines of credit		40		157		—		197		15,271		15,468		—		195

Commercial loans:
One- to four-family investment property		—		—		—		—		14,400		14,400		—		—
Multi-family real estate		—		—		—		—		30,214		30,214		—		—
Commercial real estate		—		—		—		—		83,390		83,390		—		—
Commercial business		—		—		—		—		23,851		23,851		—		—

Construction loans:
One- to four-family		—		—		—		—		9,368		9,368		—		—
Multi-family		—		—		—		—		4,505		4,505		—		—
Non-residential		—		—		—		—		7,454		7,454		—		—

Consumer		—		—		—		—		150		150		—		—
Total	$	40	$	157	$	742	$	939	$	280,730	$	281,669	$	—	$	937


	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)
At December 31, 2016
Residential loans:
One- to four-family	$	—	$	—	$	755	$	755	$	89,435	$	90,190	$	—	$	755
Home equity loans and lines of credit		191		20		41		252		15,627		15,879		—		198

Commercial loans:
One- to four-family investment property		—		—		—		—		13,081		13,081		—		—
Multi-family real estate		—		—		—		—		30,748		30,748		—		—
Commercial real estate		—		—		—		—		83,583		83,583		—		—
Commercial business		—		—		—		—		20,675		20,675		—		—

Construction loans:
One- to four-family		—		—		—		—		12,599		12,599		—		—
Multi-family		—		—		—		—		5,725		5,725		—		—
Non-residential		—		—		—		—		6,830		6,830		—		—

Consumer		7		3		—		10		172		182		—		—
Total	$	198	$	23	$	796	$	1,017	$	278,475	$	279,492	$	—	$	953

The following is a summary of impaired loans at March 31, 2017 and December 31, 2016, and for the threee months and year then ended, respectively.


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At March 31, 2017
Impaired loans without a valuation allowance

Residential loans:
One- to four-family	$	1,529	$	1,549	$	—	$	1,536	$	14
Home equity loans and lines of credit		296		296		—		220		1
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		278		278		—		280		4
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total impaired with no related allowance	$	2,103	$	2,123	$	—	$	2,036	$	19

Impaired loans with a valuation allowance

Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit		—		—		—		—		—
Commercial loans:
One- to four-family investment property		85		85		7		85		1
Multi-family real estate		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total with an allowance recorded	$	85	$	85	$	7	$	85	$	1


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At December 31, 2016
Impaired loans without a valuation allowance

Residential loans:
One- to four-family	$	1,543	$	1,555	$	—	$	1,560	$	42
Home equity loans and lines of credit		143		143		—		109		5
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		281		281		—		284		17
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total impaired with no related allowance	$	1,967	$	1,979	$	—	$	1,953	$	64

Impaired loans with a valuation allowance

Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit		—		—		—		—		—
Commercial loans:
One- to four-family investment property		85		85		7		87		4
Multi-family real estate		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total with an allowance recorded	$	85	$	85	$	7	$	87	$	4

The Company made no loan modifications that resulted in a troubled debt restructuring (“TDR”) during the three months ended March 31, 2017 and 2016. At March 31, 2017, there were no commitments to lend additional funds to borrowers whose loans were previously modified in TDRs.

At March 31, 2017 and December 31, 2016, there were no TDR loans in default of their modified terms.

The Company has one residential loan in the process of foreclosure with a recorded balance of $157,000 at March 31, 2017.

The following table represents the Company’s loans by risk rating at March 31, 2017 and December 31, 2016. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and lines		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Total
	(In thousands)
At March 31, 2017

Classification:
Not formally rated	$	91,216	$	15,193	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	150	$	106,559
Pass		—		—		14,315		30,214		82,360		23,467		9,368		4,505		7,454		—		171,683
Special mention		—		—		—		—		—		—		—		—		—		—		—
Substandard		1,653		275		85		—		1,030		384		—		—		—		—		3,427
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	92,869	$	15,468	$	14,400	$	30,214	$	83,390	$	23,851	$	9,368	$	4,505	$	7,454	$	150	$	281,669

At December 31, 2016

Classification:
Not formally rated	$	88,522	$	15,601	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	182	$	104,305
Pass		—		—		12,996		30,748		82,873		20,526		12,599		5,725		6,830		—		172,297
Special mention		—		—		—		—		—		—		—		—		—		—		—
Substandard		1,668		278		85		—		710		149		—		—		—		—		2,890
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	90,190	$	15,879	$	13,081	$	30,748	$	83,583	$	20,675	$	12,599	$	5,725	$	6,830	$	182	$	279,492

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.

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 with a one-obligor exposure greater than $350,000. In addition, a complete financial review is performed for any commercial relationship (regardless of one-obligor exposure) reporting a revolving line of credit facility greater than $150,000. More frequent reviews shall be performed depending on the quality rating of the relationship. For commercial relationships which report a current one-obligor exposure equal to or less than $350,000, and have a “Pass” risk rating, the annual review shall be more limited in scope.

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 balances of mortgage loans serviced for others were $80.9 million and $83.2 million at March 31, 2017 and December 31, 2016, 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 servicing rights was $580,000 and $601,000 at March 31, 2017 and December 31, 2016, 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 and 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, along with the aggregate activity related to valuation allowances.


	Three Months Ended
	March 31,
	2017		2016
	(In thousands)

Mortgage servicing rights:
Balance at beginning of period	$	242	$	523
Additions		—		—
Amortization		(53)		(78)
Balance at end of period		189		445

Valuation allowance:
Balance at beginning of period		6		4
Additions		1		12
Reductions		—		—
Balance at end of period		7		16

Mortgage servicing rights, net	$	182	$	429

Fair value of mortgage servicing rights	$	580	$	799