Year end loans are summarized below:

 

Loans receivable are summarized below:

 

(Dollars in thousands)
		December 31, 2019				December 31, 2018
Loans secured by real estate:
Residential real estate		$	299,569			$	224,082
Home equity			49,118				45,423
Commercial real estate			283,108				253,104
Construction and land development			87,710				64,433
Multifamily			51,286				47,234
Farmland			227				240
Total loans secured by real estate			771,018				634,516
Commercial business			103,222				103,628
Consumer			627				495
Manufactured homes			13,285				4,798
Government			15,804				21,101
Subtotal			903,956				764,538
Plus (less):
Net deferred loan origination fees			2,934				530
Undisbursed loan funds			(21	)			(668	)
Loans receivable		$	906,869			$	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 twelve months ended December 31, 2019:
Allowance for loan losses:
Residential real estate		$	1,715			$	(160	)		$	29			$	228			$	1,812
Home equity			202				-				-				21			$	223
Commercial real estate			3,335				(229	)			-				667			$	3,773
Construction and land development			756				-				-				342			$	1,098
Multifamily			472				-				-				57			$	529
Farmland			-				-				-				-			$	-
Commercial business			1,362				(1,178	)			25				1,295			$	1,504
Consumer			82				(54	)			20				(5	)		$	43
Manufactured homes			-				-				-				-			$	-
Government			38				-				-				(21	)		$	17
Total		$	7,962			$	(1,621	)		$	74			$	2,584			$	8,999
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the twelve months ended December 31, 2018:
Allowance for loan losses:
Residential real estate		$	1,568			$	(194	)		$	1			$	340			$	1,715
Home equity			166				(48	)			-				84				202
Commercial real estate			3,125				(119	)			24				305				3,335
Construction and land development			618				-				-				138				756
Multifamily			622				-				-				(150	)			472
Farmland			-				-				-				-				-
Commercial business			1,298				(592	)			134				522				1,362
Consumer			31				(58	)			24				85				82
Manufactured homes			-				-				-				-				-
Government			54				-				-				(16	)			38
Total		$	7,482			$	(1,011	)		$	183			$	1,308			$	7,962

 

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectation, the deferred cost reserve is paid as an origination cost to the party originator of the loan. The unamortized balance of the deferred cost reserve totaled million and thousand as of and respectively.

 

The Bancorp's impairment analysis is summarized below:

 

		Ending Balances
(Dollars in thousands)		Individually evaluated impairment reserves				Collectively evaluated impairment reserves				Loan receivables				Loans individually evaluated for impairment				Purchased credit impaired loans individually evaluated for impairment				Loans collectively evaluated for impairment
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2019:
Residential real estate		$	10			$	1,802			$	299,333			$	642			$	1,581			$	297,110
Home equity			4				219				49,181				221				216				48,744
Commercial real estate			-				3,773				283,108				1,078				487				281,543
Construction and land development			-				1,098				87,710				-				-				87,710
Multifamily			-				529				51,286				129				673				50,484
Farmland			-				-				227				-				-				227
Commercial business			152				1,352				103,088				1,041				1,150				100,897
Consumer			-				43				627				-				-				627
Manufactured homes			-				-				16,505				-				-				16,505
Government			-				17				15,804				-				-				15,804
Total		$	166			$	8,833			$	906,869			$	3,111			$	4,107			$	899,651
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
		December 31, 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		$	827			$	119,138			$	104,153			$	13,463			$	53,058				4,203				4,491			$	299,333
Home equity			100				6,536				40,027				264				934				813				507				49,181
Commercial real estate			-				2,030				82,158				135,058				56,917				5,380				1,565				283,108
Construction and land development			-				719				26,900				45,751				14,340				-				-				87,710
Multifamily			-				903				18,107				26,800				4,674				-				802				51,286
Farmland			-				-				-				-				227				-				-				227
Commercial business			8,312				13,158				19,638				39,016				20,009				2,228				727				103,088
Consumer			90				-				537				-				-				-				-				627
Manufactured homes			3,221				2,413				9,825				184				862				-				-				16,505
Government			-				1,889				11,505				2,410				-				-				-				15,804
Total		$	12,550			$	146,786			$	312,850			$	262,946			$	151,021			$	12,624			$	8,092			$	906,869

 

 

		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 theses 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.

 

This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonably specific pending factors which strengthen the credit can be exactly determined. These factors include proposed acquisitions, liquidation procedures, capital injection and receipt of additional collateral, mergers or refinancing plans.

 

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

 

home equity loans totaling thousand, residential real estate loans totaling thousand and commercial business loans totaling thousand were new troubled debt restructuring loans during Two troubled debt restructurings totaling thousand have subsequently defaulted during the period 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 twelve months ended
		As of December 31, 2019												December 31, 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		$	2,140			$	3,555			$	-			$	1,960			$	85
Home equity			429				451				-				380				10
Commercial real estate			1,547				2,141				-				1,578				52
Construction and land development			-				-				-				-				-
Multifamily			802				884				-				581				20
Farmland			-				-				-				-				-
Commercial business			1,814				1,906				-				1,909				81
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
With an allowance recorded:
Residential real estate			83				83				10				143				3
Home equity			8				8				4				50				-
Commercial real estate			18				18				-				382				-
Construction and land development			-				-				-				-				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			377				377				152				513				4
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
Total:
Residential real estate		$	2,223			$	3,638			$	10			$	2,103			$	88
Home equity		$	437			$	459			$	4			$	430			$	10
Commercial real estate		$	1,565			$	2,159			$	-			$	1,960			$	52
Construction & land development		$	-			$	-			$	-			$	-			$	-
Multifamily		$	802			$	884			$	-			$	581			$	20
Farmland		$	-			$	-			$	-			$	-			$	-
Commercial business		$	2,191			$	2,283			$	152			$	2,422			$	85
Consumer		$	-			$	-			$	-			$	-			$	-
Manufactured homes		$	-			$	-			$	-			$	-			$	-
Government		$	-			$	-			$	-			$	-			$	-

 

 

														For the twelve months ended
		As of December 31, 2018												December 31, 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			$	-			$	1,244			$	79
Home equity			207				214				-				111				2
Commercial real estate			1,624				2,222				-				1,216				64
Construction & land development			-				-				-				54				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			1,799				2,038				-				880				38
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
With an allowance recorded:
Residential real estate			161				161				22				123				5
Home equity			57				57				9				35				-
Commercial real estate			481				481				210				320				-
Construction & land development			-				-				-				-				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			64				64				5				140				1
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
Total:
Residential real estate		$	1,550			$	3,789			$	22			$	1,367			$	84
Home equity		$	264			$	271			$	9			$	146			$	2
Commercial real estate		$	2,105			$	2,703			$	210			$	1,536			$	64
Construction & land development		$	-			$	-			$	-			$	54			$	-
Multifamily		$	-			$	-			$	-			$	-			$	-
Farmland		$	-			$	-			$	-			$	-			$	-
Commercial business		$	1,863			$	2,102			$	5			$	1,020			$	39
Consumer		$	-			$	-			$	-			$	-			$	-
Manufactured homes		$	-			$	-			$	-			$	-			$	-
Government		$	-			$	-			$	-			$	-			$	-

 

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

 

(Dollars in thousands)																										Recorded Investments Greater than 90
		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days Past Due				Total Past Due				Current				Total Loans				Days Past Due and Accruing
December 31, 2019
Residential real estate		$	3,486			$	1,332			$	3,724			$	8,542			$	290,791			$	299,333			$	452
Home equity			90				24				388				502				48,679				49,181				19
Commercial real estate			1,461				170				719				2,350				280,758				283,108				61
Construction and land development			143				289				-				432				87,278				87,710				-
Multifamily			140				-				160				300				50,986				51,286				-
Farmland			-				-				-				-				227				227				-
Commercial business			926				583				870				2,379				100,709				103,088				288
Consumer			-				-				-				-				627				627				-
Manufactured homes			63				36				46				145				16,360				16,505				46
Government			-				-				-				-				15,804				15,804				-
Total		$	6,309			$	2,434			$	5,907			$	14,650			$	892,219			$	906,869			$	866
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)
		December 31, 2019				December 31, 2018
Residential real estate		$	4,374			$	5,135
Home equity			473				270
Commercial real estate			658				695
Construction and land development			-				-
Multifamily			420				-
Farmland			-				-
Commercial business			582				495
Consumer			-				-
Manufactured homes			-				-
Government			-				-
Total		$	6,507			$	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.

 

As the result of the acquisition of First Personal, an accretable discount totaling thousand was created for the interest component of expected cash flows related to the purchase credit impaired portfolio. The following tables summarize the accretable periods:

 

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

 

(dollars in thousands)		First Personal
2018		$	157
2019			147

 

 

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
2020			(96	)
2021			(24	)
Total		$	(120	)

 

For the acquisitions of First Federal Savings & Loan of Hammond (“First Federal”), Liberty Savings Bank (“Liberty Savings”), First Personal, and AJSB as part of the fair value of loans receivable, a net fair value discount was established for loans. This discount, or accretable yield, is recognized in interest income over the remaining estimated life of the loan pools. The net fair value discount at the acquisition date and accretable periods are summarized below:

 

(dollars in thousands)		First Federal								Liberty Savings								First Personal								AJ Smith
		Net fair value discount				Accretable period in months				Net fair value discount				Accretable period in months				Net fair value discount				Accretable period in months				Net fair value discount				Accretable period 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

 

Accretable yield, or income recorded for the months ended is as follows:

 

(dollars in thousands)		First Federal				Liberty Savings				First Personal				AJ Smith				Total
2018		$	138			$	266			$	424			$	-			$	828
2019			22				42				586				1,174			$	1,824

 

Accretable yield, or income expected to be recorded in the future is as follows:

 

(dollars in thousands)		First Personal				AJ Smith				Total
2020		$	392			$	800			$	1,192
2021			336				793				1,129
2022			325				793				1,118
2023			74				327				401
Total		$	1,127			$	2,712			$	3,839