Loans

9 Months Ended

Sep. 30, 2018

Loans and Leases Receivable Disclosure [Abstract]

Loans

Note 6: Loans

Major classifications of loans at the indicated dates are as follows:

	September 30,			December 31,
(In thousands)	2018			2017
Real estate loans:
Secured by one-to-four family residences	$	219,841		$	206,894
Secured by multi-family residences		10,337			10,650
Construction		6,277			10,750
Commercial real estate		21,650			14,803
Home equity lines of credit		17,012			17,127
Total real estate loans		275,117			260,224
Commercial and industrial loans		5,399			3,679
Other loans		56			70
Total loans		280,572			263,973
Net deferred loan origination fees		(21	)		(1	)
Less allowance for loan losses		(1,486	)		(1,261	)
Loans receivable, net	$	279,065		$	262,711

The Company originates residential mortgage, commercial, and consumer loans largely to customers throughout Monroe county and the surrounding western New York counties of Erie, Livingston, Ontario, Orleans, Jefferson, Niagara, and Wayne. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers’ abilities to honor their loan contracts is dependent upon the counties’ employment and economic conditions.

As of September 30, 2018 and December 31, 2017, residential mortgage loans with a carrying value of $194.9 million and $190.4 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings. The Company retains the servicing on conventional fixed-rate mortgage loans sold to Freddie Mac (“FHLMC”) and receives a fee based on the principal balance outstanding. Loans serviced for others totaled $126.5 million and $132.4 million at September 30, 2018 and December 31, 2017, respectively. Loan servicing rights are recorded at fair value when loans are sold with servicing rights retained. The fair value of the mortgage servicing rights (“MSRs”) is determined using a method which utilizes servicing income, discount rates, and prepayment speeds relative to the Bank’s portfolio for MSRs and are amortized over the life of the loan. MSRs amounted to $848,000 and $892,000 at September 30, 2018 and December 31, 2017, respectively, and are included in other assets on the consolidated balance sheets.

Loan Origination / Risk Management

The Company’s lending policies and procedures are presented in Note 4 to the consolidated financial statements included in FSB Bancorp’s Amendment No. 1 to the Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on August 13, 2018 and have not changed.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into two portfolio segments, each with different risk characteristics but with similar methodologies for assessing risk.  Each portfolio segment is broken down into loan classes where appropriate.  Loan classes contain unique measurement attributes, risk characteristics, and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses. Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class. 

The following table illustrates the portfolio segments and classes for the Company’s loan portfolio:

Portfolio Segment	Class
Real Estate Loans	Secured by one-to-four family residences
	Secured by multi-family residences
	Construction Commercial real estate Home equity lines of credit
Other Loans	Commercial and industrial
	Other loans

The following tables present the classes of the loan portfolio, not including net deferred loan fees, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:

	As of September 30, 2018
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Real estate loans:
Secured by one-to-four family residences	$	216,176	$	500	$	3,165	$	-	$	219,841
Secured by multi-family residences		10,337		-		-		-		10,337
Construction		6,277		-		-		-		6,277
Commercial real estate		20,462		1,188		-		-		21,650
Home equity lines of credit		16,808		-		204		-		17,012
Total real estate loans		270,060		1,688		3,369		-		275,117
Commercial & industrial loans		5,354		-		45		-		5,399
Other loans		56		-		-		-		56
Total loans	$	275,470	$	1,688	$	3,414	$	-	$	280,572

	As of December 31, 2017
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Real estate loans:
Secured by one-to-four family residences	$	203,815	$	116	$	2,963	$	-	$	206,894
Secured by multi-family residences		10,650		-		-		-		10,650
Construction		10,750		-		-		-		10,750
Commercial real estate		14,803		-		-		-		14,803
Home equity lines of credit		16,897		-		230		-		17,127
Total real estate loans		256,915		116		3,193		-		260,224
Commercial & industrial loans		3,679		-		-		-		3,679
Other loans		70		-		-		-		70
Total loans	$	260,664	$	116	$	3,193	$	-	$	263,973

Real estate loans secured by one-to four family residences rated substandard increased $202,000, or 6.8%, to $3.2 million at September 30, 2018 from $3.0 million at December 31, 2017 due to the addition of 10 residential mortgage loans newly categorized as substandard at September 30, 2018, partially offset by the upgrades of six residential mortgage loans now paying as agreed and three mortgage loan payoffs. Real estate loans secured by one-to four family residences rated special mention increased $384,000, or 330.2%, to $500,000 at September 30, 2018 from $116,000 at December 31, 2017 due to the addition of one residential mortgage loan newly categorized as special mention at September 30, 2018, partially offset by one loan now being paid as agreed which was classified as special mention at December 31, 2017. Commercial real estate loans rated special mention increased $1.2 million to $1.2 million from the $0 balance at December 31, 2017 due to the addition of three loans newly categorized as special mention after annual financial statement reviews of these borrowers were performed during the nine months ended September 30, 2018. Commercial and industrial loans rated substandard increased $45,000 to $45,000 from the $0 balance at December 31, 2017 due to the addition of one loan newly categorized as substandard during the nine months ended September 30, 2018.

Management has reviewed its loan portfolio and determined that, to the best of its knowledge, no exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of originating these types of loans.

Nonaccrual and Past Due Loans

Loans are placed on nonaccrual when the contractual payment of principal and interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan may be currently performing.

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date. An age analysis of past due loans, segregated by portfolio segment and class of loans, as of September 30, 2018 and December 31, 2017, are detailed in the following tables:

	As of September 30, 2018
	30-59 Days		60-89 Days
	Past Due		Past Due		90 Days		Total				Total Loans
(In thousands)	And Accruing		And Accruing		and Over		Past Due		Current		Receivable
Real estate loans:
Secured by one-to-four family residences	$	1,150	$	-	$	55	$	1,205	$	218,636	$	219,841
Secured by multi-family residences		-		-		-		-		10,337		10,337
Construction		-		-		-		-		6,277		6,277
Commercial		-		-		-		-		21,650		21,650
Home equity lines of credit		5		-		-		5		17,007		17,012
Total real estate loans		1,155		-		55		1,210		273,907		275,117
Commercial & industrial loans		-		-		45		45		5,354		5,399
Other loans		-		-		-		-		56		56
Total loans	$	1,155	$	-	$	100	$	1,255	$	279,317	$	280,572

	As of December 31, 2017
	30-59 Days		60-89 Days
	Past Due		Past Due		90 Days		Total				Total Loans
(In thousands)	And Accruing		And Accruing		and Over		Past Due		Current		Receivable
Real estate loans:
Secured by one-to-four family residences	$	699	$	-	$	153	$	852	$	206,042	$	206,894
Secured by multi-family residences		-		-		-		-		10,650		10,650
Construction		-		-		-		-		10,750		10,750
Commercial		-		-		-		-		14,803		14,803
Home equity lines of credit		-		-		-		-		17,127		17,127
Total real estate loans		699		-		153		852		259,372		260,224
Commercial & industrial loans		-		-		-		-		3,679		3,679
Other loans		-		-		-		-		70		70
Total loans	$	699	$	-	$	153	$	852	$	263,121	$	263,973

Real estate loans secured by one-to four family residences 30-59 days past due and accruing increased $451,000, or 64.5%, to $1.2 million at September 30, 2018 from $699,000 at December 31, 2017 due to the delinquency of three additional mortgage loans during the nine months ended September 30, 2018, partially offset by two mortgage loan payoffs.

At September 30, 2018, the Company had one nonaccrual residential mortgage loan for $55,000 and one nonaccrual commercial and industrial loan for $45,000. At December 31, 2017, the Company had two nonaccrual residential mortgage loans for $153,000.

There were no loans that were past due 90 days or more and still accruing interest at September 30, 2018 and December 31, 2017. At September 30, 2018 and December 31, 2017, there were no loans considered to be impaired and no troubled debt restructurings.