(Dollars in thousands)
		March 31, 2020				December 31, 2019
Loans secured by real estate:
Residential real estate		$	303,872			$	299,569
Home equity			48,690				49,118
Commercial real estate			280,018				283,108
Construction and land development			95,696				87,710
Multifamily			51,897				51,286
Farmland			224				227
Total loans secured by real estate			780,397				771,018
Commercial business			105,337				103,222
Consumer			600				627
Manufactured homes			14,093				13,285
Government			14,944				15,804
Subtotal			915,371				903,956
Less:
Net deferred loan origination fees			3,314				2,934
Undisbursed loan funds			277				(21	)
Loans receivable		$	918,962			$	906,869

 

 

(Dollars in thousands)		Beginning Banlance				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 March 31, 2020:
Allowance for loan losses:
Residential real estate		$	1,812			$	-			$	6			$	10			$	1,828
Home equity			223				-				-				23				246
Commercial real estate			3,773				-				-				(80	)			3,693
Construction and land development			1,098				-				-				125				1,223
Multifamily			529				-				-				33				562
Farmland			-				-				-				-				-
Commercial business			1,504				-				1				396				1,901
Consumer			43				(12	)			3				8				42
Manufactured homes			-				-				-				-				-
Government			17				-				-				(1	)			16
Total		$	8,999			$	(12	)		$	10			$	514			$	9,511
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2019:
Allowance for loan losses:
Residential real estate		$	1,715			$	(48	)		$	14			$	(1	)		$	1,680
Home equity			202				-				-				(8	)			194
Commercial real estate			3,335				-				-				150				3,485
Construction and land development			756				-				-				21				777
Multifamily			472				-				-				(38	)			434
Farmland			-				-				-				-				-
Commercial business			1,362				-				6				23				1,391
Consumer			82				(18	)			3				187				254
Manufactured homes			-				-				-				-				-
Government			38				-				-				(17	)			21
Total		$	7,962			$	(66	)		$	23			$	317			$	8,236

 

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 million as of and respectively, and is included in net deferred loan origination costs.

 

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				Loan individually evaluated for impairment				Purchased credit impaired loans individually evaluated for impairment				Collectively evaluated for impairment
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2020:
Residential real estate		$	5			$	1,823			$	303,935			$	668			$	1,487			$	301,780
Home equity			4				242				48,750				214				145				48,391
Commercial real estate			3				3,690				280,018				1,023				488				278,507
Construction and land development			-				1,223				95,696				-				-				95,696
Multifamily			-				562				51,897				119				663				51,115
Farmland			-				-				224				-				-				224
Commercial business			365				1,536				105,188				1,190				1,154				102,844
Consumer			-				42				600				-				-				600
Manufactured homes			-				-				17,710				-				-				17,710
Government			-				16				14,944				-				-				14,944
Total		$	377			$	9,134			$	918,962			$	3,214			$	3,937			$	911,811
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 credit quality indicators are summarized below at and

 

		Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
		March 31, 2020
(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		$	1,111			$	122,215			$	107,271			$	13,578			$	51,427			$	3,820			$	4,513			$	303,935
Home equity			153				6,781				39,489				259				825				739				504				48,750
Commercial real estate			-				2,312				72,707				139,436				54,255				7,770				3,538				280,018
Construction and land development...			-				1,002				28,731				51,273				14,690				-				-				95,696
Multifamily			-				888				17,661				27,661				4,904				-				783				51,897
Farmland			-				-				-				-				224				-				-				224
Commercial business			8,319				16,659				18,039				39,222				19,916				1,818				1,215				105,188
Consumer			103				2				495				-				-				-				-				600
Manufactured homes			3,617				2,253				10,832				182				826				-				-				17,710
Government			-				1,775				10,759				2,410				-				-				-				14,944
Total		$	13,303			$	153,887			$	305,984			$	274,021			$	147,067			$	14,147			$	10,553			$	918,962

 

 

		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

 

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 commercial real estate loan totaling thousand and residential loan totaling thousand was renewed as a troubled debt restructuring. commercial business trouble debt restructuring loan totaling thousand has 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 three months ended
		As of March 31, 2020												March 31, 2020
(Dollars in thousands)		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded:
Residential real estate		$	2,103			$	3,488			$	-			$	2,122			$	24
Home equity			351				371				-				390				5
Commercial real estate			1,493				2,084				-				1,520				13
Construction and land development			-				-				-				-				-
Multifamily			782				864				-				792				7
Farmland			-				-				-				-				-
Commercial business			1,486				1,560				-				1,650				17
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
With an allowance recorded:
Residential real estate		$	52			$	52			$	5			$	68			$	1
Home equity			8				8				4				8				-
Commercial real estate			18				18				3				18				-
Construction and land development			-				-				-				-				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			858				858				365				618				3
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
Total:
Residential real estate		$	2,155			$	3,540			$	5			$	2,190			$	25
Home equity		$	359			$	379			$	4			$	398			$	5
Commercial real estate		$	1,511			$	2,102			$	3			$	1,538			$	13
Construction & land development		$	-			$	-			$	-			$	-			$	-
Multifamily		$	782			$	864			$	-			$	792			$	7
Farmland		$	-			$	-			$	-			$	-			$	-
Commercial business		$	2,344			$	2,418			$	365			$	2,268			$	20
Consumer		$	-			$	-			$	-			$	-			$	-
Manufactured homes		$	-			$	-			$	-			$	-			$	-
Government		$	-			$	-			$	-			$	-			$	-

 

 

														For the three months ended
		As of December 31, 2019												March 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			$	-			$	1,578			$	14
Home equity			429				451				-				328				2
Commercial real estate			1,547				2,141				-				1,650				19
Construction & land development			-				-				-				-				-
Multifamily			802				884				-				-				-
Farmland			-				-				-				-				-
Commercial business			1,814				1,906				-				1,668				21
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
With an allowance recorded:
Residential real estate		$	83			$	83			$	10			$	160			$	2
Home equity			8				8				4				57				1
Commercial real estate			18				18				-				481				-
Construction & land development			-				-				-				-				-
Multifamily			-				-				-				-				-
Farmland			-				-				-				-				-
Commercial business			377				377				152				48				-
Consumer			-				-				-				-				-
Manufactured homes			-				-				-				-				-
Government			-				-				-				-				-
Total:
Residential real estate		$	2,223			$	3,638			$	10			$	1,738			$	16
Home equity		$	437			$	459			$	4			$	385			$	3
Commercial real estate		$	1,565			$	2,159			$	-			$	2,131			$	19
Construction & land development		$	-			$	-			$	-			$	-			$	-
Multifamily		$	802			$	884			$	-			$	-			$	-
Farmland		$	-			$	-			$	-			$	-			$	-
Commercial business		$	2,191			$	2,283			$	152			$	1,716			$	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
March 31, 2020
Residential real estate		$	4,708			$	1,413			$	3,267			$	9,388			$	294,547			$	303,935			$	348
Home equity			593				129				374				1,096				47,654				48,750				-
Commercial real estate			5,935				1,363				531				7,829				272,189				280,018				60
Construction and land development.			664				-				-				664				95,032				95,696				-
Multifamily			339				119				106				564				51,333				51,897				75
Farmland			-				-				-				-				224				224				-
Commercial business			1,636				286				1,742				3,664				101,524				105,188				654
Consumer			7				-				-				7				593				600				-
Manufactured homes			152				16				-				168				17,542				17,710				-
Government			-				-				-				-				14,944				14,944				-
Total		$	14,034			$	3,326			$	6,020			$	23,380			$	895,582			$	918,962			$	1,137
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

 

The Bancorp's loans on nonaccrual status are summarized below:
(Dollars in thousands)
		March 31, 2020				December 31, 2019
Residential real estate		$	4,498			$	4,374
Home equity			470				473
Commercial real estate			472				658
Construction and land development			-				-
Multifamily			410				420
Farmland			-				-
Commercial business			1,088				582
Consumer			-				-
Manufactured homes			-				-
Government			-				-
Total		$	6,938			$	6,507

 

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 three months ended March 31, 2020, is as follows:
(dollars in thousands)			First Personal
2019			$	62
2020				29

 

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				68
2021				23
Total			$	91

 

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, 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								AJSB
		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 three months ended March 31, is as follows:
(dollars in thousands)		First Federal				Liberty Savings				First Personal				AJSB				Total
2019		$	22			$	42			$	203			$	155			$	422
2020			-				-				115				245			$	361

 

Accretable yield, or income expected to be recorded in the future is as follows:
(dollars in thousands)			First Federal				Liberyy Savings				First Personal				AJSB				Total
2020			$	-			$	-			$	281			$	585			$	866
2021				-				-				333				780				1,113
2022				-				-				323				780				1,103
2023				-				-				73				322				395
Total			$	-			$	-			$	1,010			$	2,467			$	3,477