Loans receivable are summarized below:

 

(Dollars in thousands)
		September 30, 2019				December 31, 2018
Loans secured by real estate:
Residential real estate		$	298,138			$	224,082
Home equity			49,719				45,423
Commercial real estate			282,536				253,104
Construction and land development			79,351				64,433
Multifamily			50,878				47,234
Farmland			230				240
Total loans secured by real estate			760,852				634,516
Commercial business			109,485				103,628
Consumer			763				495
Manufactured homes			12,882				4,798
Government			17,609				21,101
Subtotal			901,591				764,538
Less:
Net deferred loan origination fees			2,813				530
Undisbursed loan funds			(131	)			(668	)
Loans receivable		$	904,273			$	764,400

 

 

(Dollars in thousands)		Beginning Balance				Charge-offs				Recoveries				Provisions				Ending Balance
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2019:
Allowance for loan losses:
Residential real estate		$	1,660			$	(62	)		$	5			$	149			$	1,752
Home equity			202				-				2				23				227
Commercial real estate			3,529				-				-				178				3,707
Construction and land development			806				-				-				188				994
Multifamily			453				-				-				51				504
Farmland			-				-				-				-				-
Commercial business			1,517				(9	)			8				405				1,921
Consumer			51				(13	)			5				7				50
Manufactured homes			505				-				-				(505	)			-
Government			21				-				-				(2	)			19
Total		$	8,744			$	(84	)		$	20			$	494			$	9,174
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2018:
Allowance for loan losses:
Residential real estate		$	1,523			$	(30	)		$	-			$	82			$	1,575
Home equity			183				-				-				10				193
Commercial real estate			3,170				-				22				48				3,240
Construction and land development			611				-				-				(32	)			579
Multifamily			607				-				-				(150	)			457
Farmland			4				-				-				(1	)			3
Commercial business			1,264				-				8				61				1,333
Consumer			36				(19	)			8				298				323
Manufactured homes			-				-				-				-				-
Government			50				-				-				(4	)			46
Total		$	7,448			$	(49	)		$	38			$	312			$	7,749

 

 

(Dollars in thousands)		Beginning Balance				Charge-offs				Recoveries				Provisions				Ending Balance
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2019:
Allowance for loan losses:
Residential real estate		$	1,715			$	(128	)		$	23			$	142			$	1,752
Home equity			202				-				4				21			$	227
Commercial real estate			3,335				-				-				372			$	3,707
Construction and land development			756				-				-				238			$	994
Multifamily			472				-				-				32			$	504
Farmland			-				-				-				-			$	-
Commercial business			1,362				(9	)			24				544			$	1,921
Consumer			41				(38	)			14				33			$	50
Manufactured homes			41				-				-				(41	)		$	-
Government			38				-				-				(19	)		$	19
Total		$	7,962			$	(175	)		$	65			$	1,322			$	9,174
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2018:
Allowance for loan losses:
Residential real estate		$	1,568			$	(136	)		$	-			$	143			$	1,575
Home equity			166				(24	)			-				51				193
Commercial real estate			3,125				(119	)			24				210				3,240
Construction and land development			618				-				-				(39	)			579
Multifamily			622				-				-				(165	)			457
Farmland			-				-				-				3				3
Commercial business			1,298				(529	)			125				439				1,333
Consumer			31				(41	)			17				316				323
Manufactured homes			-				-				-				-				-
Government			54				-				-				(8	)			46
Total		$	7,482			$	(849	)		$	166			$	950			$	7,749

 

The Bancorp's impairment analysis is summarized below:

 

		Ending Balances
(Dollars in thousands)		Individually evaluated for impairment reserves				Collectively evaluated for impairment reserves				Loan receivables				Individually evaluated for impairment				Purchased credit impaired individually evaluated for impairment				Collectively evaluated for impairment
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at September 30, 2019:
Residential real estate		$	17			$	1,735			$	297,830			$	628			$	1,747			$	295,455
Home equity			9				218				49,781				282				220				49,279
Commercial real estate			218				3,489				282,536				1,352				486				280,698
Construction and land development			-				994				79,351				-				-				79,351
Multifamily			-				504				50,878				-				684				50,194
Farmland			-				-				230				-				-				230
Commercial business			967				954				109,359				2,436				1,147				105,776
Consumer			-				50				1,334				-				-				1,334
Manufactured homes			-				-				15,365				-				-				15,365
Government			-				19				17,609				-				-				17,609
Total		$	1,211			$	7,963			$	904,273			$	4,698			$	4,284			$	895,291
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:
Residential real estate		$	22				1,693				223,323			$	570			$	980			$	221,773
Home equity			9				193				45,483				141				123				45,219
Commercial real estate			210				3,125				253,104				1,703				402				250,999
Construction and land development			-				756				64,433				-				-				64,433
Multifamily			-				472				47,234				-				-				47,234
Farmland			-				-				240				-				-				240
Commercial business			5				1,357				103,439				423				1,440				101,576
Consumer			-				82				643				-				-				643
Manufactured homes			-				-				5,400				-				-				5,400
Government			-				38				21,101				-				-				21,101
Total		$	246			$	7,716			$	764,400			$	2,837			$	2,945			$	758,618

 

The Bancorp's credit quality indicators are summarized below at and

 

		Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
		September 30, 2019
(Dollars in thousands)		2				3				4				5				6				7				8
Loan Segment		Moderate				Above average acceptable				Acceptable				Marginally acceptable				Pass/monitor				Special mention				Substandard				Total
Residential real estate		$	940			$	114,219			$	105,136			$	13,338			$	54,445				4,304				5,448			$	297,830
Home equity			110				7,293				39,736				253				997				810				582				49,781
Commercial real estate			2,575				2,398				85,479				129,731				56,424				4,091				1,838				282,536
Construction and land development			-				573				21,143				42,371				15,264				-				-				79,351
Multifamily			-				920				18,426				27,673				3,042				133				684				50,878
Farmland			-				-				-				-				230				-				-				230
Commercial business			8,326				19,337				20,804				35,889				20,381				2,500				2,122				109,359
Consumer			689				3				637				-				5				-				-				1,334
Manufactured homes			2,483				2,571				9,256				186				869				-				-				15,365
Government			-				1,889				12,560				3,160				-				-				-				17,609
Total		$	15,123			$	149,203			$	313,177			$	252,601			$	151,657			$	11,838			$	10,674			$	904,273

 

		December 31, 2018
(Dollars in thousands)		2				3				4				5				6				7				8
Loan Segment		Moderate				Above average acceptable				Acceptable				Marginally acceptable				Pass/monitor				Special mention				Substandard				Total
Residential real estate		$	261			$	58,276			$	100,374			$	10,404			$	44,734			$	3,908			$	5,366			$	223,323
Home equity			192				3,736				40,165				37				323				657				373				45,483
Commercial real estate			-				5,042				78,611				110,984				51,982				4,715				1,770				253,104
Construction and land development			-				322				24,271				29,383				10,457				-				-				64,433
Multifamily			-				569				19,255				23,417				3,844				149				-				47,234
Farmland			-				-				-				-				240				-				-				240
Commercial business			10,655				19,127				20,941				34,996				14,034				2,958				728				103,439
Consumer			202				-				441				-				-				-				-				643
Manufactured homes			723				2,953				599				196				909				20				-				5,400
Government			-				2,111				14,795				4,195				-				-				-				21,101
Total		$	12,033			$	92,136			$	299,452			$	213,612			$	126,523			$	12,407			$	8,237			$	764,400

 

The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:

 

Borrower demonstrates exceptional credit fundamentals, including stable and predictable profit margins, strong liquidity and a conservative balance sheet with superior asset quality. Excellent cash flow coverage of existing and projected debt service. Historic and projected performance indicates borrower is able to meet obligations under almost any economic circumstances.

Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.

 

Borrower generates sufficient cash flow to fund debt service and some working assets and/or capital expansion needs. Profitability and key balance sheet ratios are at or slightly above peers. Current trends are positive or stable. Earnings be level or trending down slightly or be erratic; however, positive strengths are offsetting. Risk of default is reasonable but warrant collateral protection.

 

Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but or more ratios (e.g. leverage) be higher than peer. Earnings be trending down over the last years. Borrower be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.

 

Borrower exhibit excessive growth, declining earnings, strained cash flow, increasing leverage and/or weakening market position that indicate above average risk. Limited additional debt capacity, modest coverage, and average or below average asset quality, margins and market share. Interim losses and/or adverse trends occur, but to the level that would affect the Bank’s position. The potential for default is higher than normal but considered marginally acceptable based on prospects for improving financial performance and the strength of the collateral.

 

The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and be temporarily strained. Cash flow be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.

 

Special mention credits are considered bankable assets with apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but to the point of justifying a classification of Substandard.

 

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are corrected.

 

Performing loans are loans that are paying as agreed and are approximately less than days past due on payments of interest and principal.

 

During the months of home equity loans and commercial business loan totaling thousand were renewed as troubled debt restructurings and loans, consisting of commercial business and residential loan, totaling thousand were restructured as new TDR loans. Two troubled debt restructurings totaling thousand have subsequently defaulted during the periods presented. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are present, then the fair value of the collateral securing the loan is the basis for valuation.

 

The Bancorp's individually evaluated impaired loans are summarized below:

 

														For the nine months ended
		As of September 30, 2019												September 30, 2019
(Dollars in thousands)		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded:
Residential real estate		$	2,222			$	3,697			$	-			$	1,915			$	55
Home equity			439				462				-				368				6
Commercial real estate			1,380				1,976				-				1,586				41
Construction and land development			-				-				-				-				-
Multifamily			684				766				-				525				12
Farmland			-				-				-				-				-
Commercial business			1,832				1,942				-				1,933				63
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
With an allowance recorded:
Residential real estate			153				153				17				158				3
Home equity			63				63				9				60				1
Commercial real estate			458				458				218				473				-
Construction and land development			-				-				-				-				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			1,751				1,751				967				547				3
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
Total:
Residential real estate		$	2,375			$	3,850			$	17			$	2,073			$	58
Home equity		$	502			$	525			$	9			$	428			$	7
Commercial real estate		$	1,838			$	2,434			$	218			$	2,059			$	41
Construction & land development		$	-			$	-			$	-			$	-			$	-
Multifamily		$	684			$	766			$	-			$	525			$	12
Farmland		$	-			$	-			$	-			$	-			$	-
Commercial business		$	3,583			$	3,693			$	967			$	2,480			$	66
Consumer		$	-			$	-			$	-			$	-			$	-
Manufactured homes		$	-			$	-			$	-			$	-			$	-
Government		$	-			$	-			$	-			$	-			$	-

 

 

														For the nine months ended
		As of December 31, 2018												September 30, 2018
(Dollars in thousands)		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded:
Residential real estate		$	1,389			$	3,628			$	-			$	1,208			$	61
Home equity			207				214				-				87				1
Commercial real estate			1,624				2,222				-				1,114				46
Construction & land development			-				-				-				67				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			1,799				2,038				-				651				20
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
With an allowance recorded:
Residential real estate			161				161				22				114				4
Home equity			57				57				9				29				-
Commercial real estate			481				481				210				280				3
Construction & land development			-				-				-				-				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			64				64				5				159				1
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
Total:
Residential real estate		$	1,550			$	3,789			$	22			$	1,322			$	65
Home equity		$	264			$	271			$	9			$	116			$	1
Commercial real estate		$	2,105			$	2,703			$	210			$	1,394			$	49
Construction & land development		$	-			$	-			$	-			$	67			$	-
Multifamily		$	-			$	-			$	-			$	-			$	-
Farmland		$	-			$	-			$	-			$	-			$	-
Commercial business		$	1,863			$	2,102			$	5			$	810			$	21
Consumer		$	-			$	-			$	-			$	-			$	-
Manufactured homes		$	-			$	-			$	-			$	-			$	-
Government		$	-			$	-			$	-			$	-			$	-

 

The Bancorp's age analysis of past due loans is summarized below:

 

(Dollars in thousands)		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days Past Due				Total Past Due				Current				Total Loans				Recorded Investments Greater than 90 Days Past Due and Accruing
September 30, 2019
Residential real estate		$	2,179			$	1,716			$	4,268			$	8,163			$	289,667			$	297,830			$	318
Home equity			300				20				582				902				48,879				49,781				136
Commercial real estate			6,655				-				976				7,631				274,905				282,536				63
Construction and land development			-				299				-				299				79,052				79,351				-
Multifamily			282				133				31				446				50,432				50,878				31
Farmland			-				-				-				-				230				230				-
Commercial business			535				133				2,186				2,854				106,505				109,359				237
Consumer			-				-				-				-				1,334				1,334				-
Manufactured homes			165				128				-				293				15,072				15,365				-
Government			-				-				-				-				17,609				17,609				-
Total		$	10,116			$	2,429			$	8,043			$	20,588			$	883,685			$	904,273			$	785
December 31, 2018
Residential real estate		$	3,659			$	909			$	4,362			$	8,930			$	214,393			$	223,323			$	122
Home equity			143				5				304				452				45,031				45,483				50
Commercial real estate			842				18				611				1,471				251,633				253,104				-
Construction and land development			491				533				-				1,024				63,409				64,433				-
Multifamily			-				149				-				149				47,085				47,234				-
Farmland			-				-				-				-				240				240				-
Commercial business			733				260				436				1,429				102,010				103,439				149
Consumer			1				-				-				1				642				643				-
Manufactured homes			-				72				-				72				5,328				5,400				-
Government			-				-				-				-				21,101				21,101				-
Total		$	5,869			$	1,946			$	5,713			$	13,528			$	750,872			$	764,400			$	321

 

The Bancorp's loans on nonaccrual status are summarized below:

 

(Dollars in thousands)
		September 30, 2019				December 31, 2018
Residential real estate		$	5,132			$	5,135
Home equity			547				270
Commercial real estate			913				695
Construction and land development			-				-
Multifamily			260				-
Farmland			-				-
Commercial business			1,951				495
Consumer			-				-
Manufactured homes			-				-
Government			-				-
Total		$	8,803			$	6,595

 

As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At total purchased credit impaired loans with unpaid principal balances totaled million with a recorded investment of million. At purchased credit impaired loans with unpaid principal balances totaled million with a recorded investment of million.

 

Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the months ended is as follows:

 

(dollars in thousands)		First Personal
2018		$	26
2019			118

 

Accretable interest taken from the purchase credit impaired portfolio, or income expected to be recorded in the future is as follows:

 

(dollars in thousands)		First Personal
2019		$	(25	)
2020			(100	)
2021			(25	)
Total		$	(150	)

 

 

For the acquisitions of First Federal Savings & Loan (“First Federal”), Liberty Savings Bank (“Liberty Savings”), First Personal Bank (“First Personal”), and A.J. Smith Federal Savings Bank (“AJ Smith”), as part of the fair value of loans receivable, a net fair value discount was established for loans as summarized below:

 

(dollars in thousands)		First Federal								Liberty Savings								First Personal								AJ Smith
		Net fair value				Accretable period				Net fair value				Accretable period				Net fair value				Accretable period				Net fair value				Accretable period
		discount				in months				discount				in months				discount				in months				discount				in months
Residential real estate		$	1,062				59			$	1,203				44			$	948				56			$	3,734				52
Home equity			44				29				5				29				51				50				141				32
Commercial real estate			-				-				-				-				208				56				8				9
Construction and land development			-				-				-				-				1				30				-				-
Multifamily			-				-				-				-				11				48				2				48
Consumer			-				-				-				-				146				50				1				5
Commercial business			-				-				-				-				348				24				-				-
Purchased credit impaired loans			-				-				-				-				424				32				-				-
Total		$	1,106							$	1,208							$	2,137							$	3,886