INBK-2014.06.30-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period June 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________ to ________.
 
Commission File Number 001-35750
 
First Internet Bancorp
(Exact Name of Registrant as Specified in Its Charter)
 
Indiana
 
20-3489991
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
8888 Keystone Crossing, Suite 1700
Indianapolis, Indiana
 
46240
(Address of Principal Executive Offices)
 
(Zip Code)
 
(317) 532-7900
 
 
(Registrant’s Telephone Number, Including Area Code)
 
 
 
 
 
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
 
  
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).      Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
 
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-accelerated Filer ¨ (Do not check if a smaller reporting company)
Smaller Reporting Company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes ¨ No þ
 
As of August 8, 2014, the registrant had 4,449,619 shares of common stock issued and outstanding.



Cautionary Note Regarding Forward-Looking Statements
  
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, rather statements based on First Internet Bancorp’s (“we,” “our,” “us” or the “Company”) current expectations regarding its business strategies, intended results and future performance.  Forward-looking statements are generally preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.  Such statements are subject to certain risks and uncertainties including: failures or interruptions in our information systems; growth in our commercial lending activities; declines in market values of our investments; technological obsolescence; our possible need for additional capital resources in the future; competition; loss of key members of management; fluctuations in interest rates; inadequate allowance for loan losses; risks relating to consumer lending; our dependence on capital distributions from the First Internet Bank of Indiana (the "Bank"); our ability to maintain growth in our mortgage lending business; a decline in the mortgage loan markets or real estate markets; risks associated with the regulation of financial institutions; and changes in regulatory capital requirements. Additional factors that may affect our results include those discussed in our most recent Annual Report on Form 10-K under the heading “Risk Factors” and in other reports filed with the Securities and Exchange Commission (the "SEC").  The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  The factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
 
Except as required by law, the Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
 

(i)


PART I

ITEM 1.
FINANCIAL STATEMENTS 

First Internet Bancorp
Condensed Consolidated Balance Sheets
(Amounts in thousands except share data)
 
 
June 30,
2014
 
December 31,
2013
 
 
(Unaudited)
 
 
Assets
 
 

 
 

Cash and due from banks
 
$
1,926

 
$
2,578

Interest-bearing demand deposits
 
18,718

 
51,112

Total cash and cash equivalents
 
20,644

 
53,690

Interest-bearing time deposits
 
2,000

 
2,500

Securities available-for-sale - at fair value (amortized cost of $159,393 and $185,091, respectively)
 
159,528

 
181,409

Loans held-for-sale (includes $19,130 and $24,254 at fair value, respectively)
 
21,466

 
28,610

Loans receivable
 
631,678

 
501,153

Allowance for loan losses
 
(5,140
)
 
(5,426
)
Net loans receivable
 
626,538

 
495,727

Accrued interest receivable
 
2,694

 
2,904

Federal Home Loan Bank of Indianapolis stock
 
2,943

 
2,943

Cash surrender value of bank-owned life insurance
 
12,128

 
11,935

Premises and equipment, net
 
7,133

 
7,134

Goodwill
 
4,687

 
4,687

Other real estate owned
 
4,664

 
4,381

Accrued income and other assets
 
3,682

 
6,422

Total assets
 
$
868,107

 
$
802,342

Liabilities and Shareholders’ Equity
 
 

 
 

Liabilities
 
 

 
 

Non-interest bearing deposits
 
$
19,065

 
$
19,386

Interest-bearing deposits
 
725,108

 
653,709

Total deposits
 
744,173

 
673,095

Advances from Federal Home Loan Bank
 
21,845

 
31,793

Subordinated debt
 
2,831

 
2,789

Accrued interest payable
 
96

 
102

Accrued expenses and other liabilities
 
4,628

 
3,655

Total liabilities
 
773,573

 
711,434

Commitments and Contingencies
 


 


Shareholders’ Equity
 
 

 
 

Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none
 
—

 
—

Voting common stock, no par value; 45,000,000 shares authorized; 4,449,619 and 4,448,326 shares issued and outstanding, respectively
 
71,509

 
71,378

Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none
 
—

 
—

Retained earnings
 
22,938

 
21,902

Accumulated other comprehensive income (loss)
 
87

 
(2,372
)
Total shareholders’ equity
 
94,534

 
90,908

Total liabilities and shareholders’ equity
 
$
868,107

 
$
802,342

See Notes to Condensed Consolidated Financial Statements

1


First Internet Bancorp
Condensed Consolidated Statements of Income – Unaudited
(Amounts in thousands except share and per share data)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Interest Income
 
 

 
 

 
 

 
 

Loans
 
$
6,571

 
$
4,861

 
$
12,700

 
$
9,903

Securities – taxable
 
1,041

 
902

 
1,887

 
1,386

Securities – non-taxable
 
—

 
396

 
58

 
699

Total interest income
 
7,612

 
6,159

 
14,645

 
11,988

Interest Expense
 
 

 
 

 
 

 
 

Deposits
 
1,922

 
1,656

 
3,782

 
3,284

Other borrowed funds
 
317

 
267

 
624

 
575

Total interest expense
 
2,239

 
1,923

 
4,406

 
3,859

Net Interest Income
 
5,373

 
4,236

 
10,239

 
8,129

Provision (Credit) for Loan Losses
 
(73
)
 
24

 
74

 
158

Net Interest Income After Provision (Credit) for Loan Losses
 
5,446

 
4,212

 
10,165

 
7,971

Noninterest Income
 
 

 
 

 
 

 
 

Service charges and fees
 
187

 
179

 
354

 
338

Mortgage banking activities
 
1,229

 
3,457

 
2,129

 
6,468

Other-than-temporary impairment
 
 

 
 

 
 

 
 

Total loss related to other-than-temporarily impaired securities
 
—

 
(15
)
 
—

 
(994
)
Portion of loss recognized in other comprehensive income (loss)
 
—

 
—

 
—

 
945

Other-than-temporary impairment loss recognized in net income
 
—

 
(15
)
 
—

 
(49
)
Gain (loss) on sale of securities
 
125

 
19

 
484

 
(166
)
Loss on asset disposals
 
(18
)
 
(8
)
 
(31
)
 
(87
)
Other
 
99

 
87

 
197

 
202

Total noninterest income
 
1,622

 
3,719

 
3,133

 
6,706

Noninterest Expense
 
 

 
 

 
 

 
 

Salaries and employee benefits
 
3,021

 
2,846

 
6,076

 
5,225

Marketing, advertising, and promotion
 
394

 
455

 
776

 
827

Consulting and professional services
 
494

 
561

 
952

 
1,214

Data processing
 
239

 
232

 
476

 
446

Loan expenses
 
136

 
285

 
250

 
365

Premises and equipment
 
666

 
616

 
1,268

 
934

Deposit insurance premium
 
138

 
115

 
282

 
227

Other
 
472

 
415

 
918

 
850

Total noninterest expense
 
5,560

 
5,525

 
10,998

 
10,088

Income Before Income Taxes
 
1,508

 
2,406

 
2,300

 
4,589

Income Tax Provision
 
531

 
694

 
723

 
1,389

Net Income
 
$
977


$
1,712


$
1,577

 
$
3,200

Income Per Share of Common Stock
 
 

 
 

 
 

 
 

Basic
 
$
0.22

 
$
0.59

 
$
0.35

 
$
1.11

Diluted
 
$
0.22

 
$
0.59

 
$
0.35

 
$
1.11

Weighted-Average Number of Common Shares Outstanding
 
 

 
 

 
 

 
 

Basic
 
4,496,219

 
2,888,260

 
4,495,449

 
2,887,207

Diluted
 
4,504,302

 
2,888,260

 
4,503,010

 
2,887,207

Dividends Declared Per Share
 
$
0.06

 
$
0.06

 
$
0.12

 
$
0.10


See Notes to Condensed Consolidated Financial Statements

2


First Internet Bancorp
Condensed Consolidated Statements of Comprehensive Income – Unaudited
(Dollar amounts in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Net income
 
$
977

 
$
1,712

 
$
1,577

 
$
3,200

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on securities available-for-sale
 
2,625

 
(5,048
)
 
3,550

 
(4,459
)
Reclassification adjustment for (gains) losses realized
 
(125
)
 
(19
)
 
(484
)
 
166

Net unrealized holding gains (losses) on securities available-for-sale for which an other-than-temporary impairment has been recognized in income
 
688

 
(15
)
 
751

 
(994
)
Reclassification adjustment for other-than-temporary impairment loss recognized in income
 
—

 
15

 
—

 
49

Other comprehensive income (loss) before tax
 
3,188

 
(5,067
)
 
3,817

 
(5,238
)
Income tax provision (benefit)
 
1,134

 
(1,774
)
 
1,358

 
(1,834
)
Other comprehensive income (loss) - net of tax
 
2,054

 
(3,293
)
 
2,459

 
(3,404
)
Comprehensive income (loss)
 
$
3,031

 
$
(1,581
)
 
$
4,036

 
$
(204
)
 
 See Notes to Condensed Consolidated Financial Statements

3


First Internet Bancorp
Condensed Consolidated Statements of Shareholders’ Equity - Unaudited
Six Months Ended June 30, 2014
(Dollar amounts in thousands except per share data)
 
 
Voting and
Nonvoting
Common
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Shareholders’
Equity
Balance, January 1, 2014
 
$
71,378

 
$
(2,372
)
 
$
21,902

 
$
90,908

Net income
 
—

 
—

 
1,577

 
1,577

Other comprehensive income
 
—

 
2,459

 
—

 
2,459

Dividends declared ($0.12 per share)
 
—

 
—

 
(541
)
 
(541
)
Recognition of the fair value of share-based compensation
 
252

 
—

 
—

 
252

Common stock redeemed for the net settlement of share-based awards
 
(71
)
 
—

 
—

 
(71
)
Other
 
(50
)
 
—

 
—

 
(50
)
Balance, June 30, 2014
 
$
71,509

 
$
87

 
$
22,938

 
$
94,534

 
See Notes to Condensed Consolidated Financial Statements

4


First Internet Bancorp
Condensed Consolidated Statements of Cash Flows – Unaudited
(Dollar amounts in thousands)
 
 
Six Months Ended
June 30,
 
 
2014
 
2013
Operating Activities
 
 

 
 

Net income
 
$
1,577

 
$
3,200

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation & amortization
 
1,004

 
1,265

Increase in cash surrender value of bank-owned life insurance
 
(193
)
 
(196
)
Provision for loan losses
 
74

 
158

Share-based compensation expense
 
252

 
60

Loss on other-than-temporary impairment of securities
 
—

 
49

Loss (gain) from sale of available-for-sale securities
 
(484
)
 
166

Loans originated for sale
 
(161,992
)
 
(512,531
)
Proceeds from sale of loans
 
171,434

 
537,627

Gain on loans sold
 
(1,908
)
 
(6,465
)
Unrealized loss (gain) on loans held-for-sale
 
(390
)
 
1,127

Loss (gain) on derivatives
 
169

 
(1,130
)
Net change in:
 
 
 
 
Accrued interest receivable
 
210

 
(75
)
Accrued income and other assets
 
1,267

 
1,758

Accrued expenses and other liabilities
 
658

 
950

Net cash provided by operating activities
 
11,678

 
25,963

Investing Activities
 
 
 
 
Net change in loans
 
(73,596
)
 
(9,137
)
Net change in interest bearing deposits
 
500

 
(2,500
)
Maturities of securities available for sale
 
8,946

 
22,064

Proceeds from sale of securities available for sale
 
113,587

 
41,040

Purchase of securities available for sale
 
(96,803
)
 
(103,526
)
Purchase of premises and equipment
 
(557
)
 
(7,326
)
Loans purchased
 
(57,217
)
 
—

Net cash used in investing activities
 
(105,140
)
 
(59,385
)
Financing Activities
 
 
 
 
Net increase in deposits
 
71,078

 
30,471

Cash dividends paid
 
(529
)
 
(114
)
Proceeds from issuance of subordinated debt and related warrants
 
—

 
3,000

Proceeds from FHLB advances
 
30,000

 
—

Repayment of FHLB advances
 
(40,000
)
 
(17,000
)
Other, net
 
(133
)
 
—

Net cash provided by financing activities
 
60,416

 
16,357

Net Decrease in Cash and Cash Equivalents
 
(33,046
)
 
(17,065
)
Cash and Cash Equivalents, Beginning of Period
 
53,690

 
32,513

Cash and Cash Equivalents, End of Period
 
$
20,644

 
$
15,448

Supplemental Disclosures of Cash Flows Information
 
 
 
 
Cash paid during the period for interest
 
$
4,412

 
$
3,879

Cash paid during the period for taxes
 
—

 
723

Loans transferred to real estate owned
 
—

 
507

Cash dividends declared, not paid
 
265

 
169

See Notes to Condensed Consolidated Financial Statements

5


First Internet Bancorp
Notes to Condensed Consolidated Financial Statements – Unaudited
(Dollar amounts in thousands except per share data)
  
Note 1:        Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, or cash flows in accordance with U.S. GAAP. In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results expected for the year ending December 31, 2014 or any other period. The June 30, 2014 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, 2013.
 
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for loan losses, valuations and impairments of investment securities, and the accounting for income tax expense are highly dependent upon management’s estimates, judgments, and assumptions where changes in any of these could have a significant impact on the financial statements.
 
The condensed consolidated financial statements include the accounts of First Internet Bancorp (“Company”), its wholly-owned subsidiary, First Internet Bank of Indiana (“Bank”), and the Bank’s wholly-owned subsidiary, JKH Realty Services, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations, and cash flows of the Company.
 
Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 financial statement presentation. These reclassifications had no effect on net income.
 
On June 21, 2013, the Company completed a three-for-two (3:2) split of its common stock by the payment of a stock dividend of one-half of one share on each outstanding share of common stock. Except as otherwise indicated, all of the share and per-share information referenced throughout this report has been adjusted to reflect this stock split.

6


Note 2:        Earnings Per Share
 
Earnings per share of common stock are based on the weighted-average number of basic shares and dilutive shares outstanding during the period.
 
The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations for the three and six months ended June 30, 2014 and 2013:
 
 
 
Three Months Ended
June 30,
 
 
2014
 
2013
Basic earnings per share
 
 

 
 

Net income available to common shareholders
 
$
977

 
$
1,712

Weighted-average common shares
 
4,496,219

 
2,888,260

Basic earnings per common share
 
$
0.22

 
$
0.59

Diluted earnings per share
 
 

 
 

Net income applicable to diluted earnings per share
 
$
977

 
$
1,712

Weighted-average common shares
 
4,496,219

 
2,888,260

Dilutive effect of warrants
 
4,835

 
—

Dilutive effect of equity compensation
 
3,248

 
—

     Weighted-average common and incremental shares
 
4,504,302

 
2,888,260

Diluted earnings per common share
 
$
0.22

 
$
0.59

Number of warrants excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price of the Company’s common stock during the period
 
—

 
48,750

  
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
Basic earnings per share
 
 

 
 

Net income available to common shareholders
 
$
1,577

 
$
3,200

Weighted-average common shares
 
4,495,449

 
2,887,207

Basic earnings per common share
 
$
0.35

 
$
1.11

Diluted earnings per share
 
 

 
 
Net income applicable to diluted earnings per share
 
$
1,577

 
$
3,200

Weighted-average common shares
 
4,495,449

 
2,887,207

Dilutive effect of warrants
 
5,838

 
—

Dilutive effect of equity compensation
 
1,723

 
—

     Weighted-average common and incremental shares
 
4,503,010

 
2,887,207

Diluted earnings per common share
 
$
0.35

 
$
1.11

Number of warrants excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price of the Company’s common stock during the period
 
—

 
48,750



7


Note 3:         Securities
 
Securities at June 30, 2014 and December 31, 2013 are as follows: 
 
 
June 30, 2014
 
 
Amortized
 
Gross Unrealized
 
Fair
 
 
Cost
 
Gains
 
Losses
 
Value
Securities available-for-sale
 
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
 
$
20,204

 
$
174

 
$
(450
)
 
$
19,928

Mortgage-backed and asset-backed securities – government-sponsored enterprises
 
137,189

 
1,272

 
(856
)
 
137,605

Other securities
 
2,000

 
—

 
(5
)
 
1,995

Total available-for-sale
 
$
159,393

 
$
1,446

 
$
(1,311
)
 
$
159,528

 
 
 
December 31, 2013
 
 
Amortized
 
Gross Unrealized
 
Fair
 
 
Cost
 
Gains
 
Losses
 
Value
Securities available-for-sale
 
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
 
$
57,569

 
$
470

 
$
(1,762
)
 
$
56,277

Municipals
 
46,126

 
1,080

 
(883
)
 
46,323

Mortgage-backed and asset-backed securities – government-sponsored enterprises
 
75,058

 
696

 
(1,813
)
 
73,941

Mortgage-backed and asset-backed securities – private labeled
 
1,313

 
9

 
(90
)
 
1,232

Other securities
 
5,025

 
—

 
(1,389
)
 
3,636

Total available-for-sale
 
$
185,091

 
$
2,255

 
$
(5,937
)
 
$
181,409

 
The carrying value of securities at June 30, 2014 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Available-for-Sale
 
 
Amortized
Cost
 
Fair
Value
Within one year
 
$
2,009

 
$
2,004

One to five years
 
3,697

 
3,689

Five to ten years
 
949

 
952

After ten years
 
15,549

 
15,278

 
 
22,204

 
21,923

Mortgage-backed and asset-backed securities – government-sponsored enterprises
 
137,189

 
137,605

Totals
 
$
159,393

 
$
159,528

 
In the three months ended June 30, 2014, the Company continued the restructuring and repositioning of its securities portfolio that began in early 2014 by selling a portion of the portfolio, including the ALESCO IV and I-PreTSL I collateralized debt obligations. During the three months ended March 31, 2014, the Company sold all of the municipal securities that were held in the securities portfolio at December 31, 2013. The actions taken in 2014 are intended to further mitigate interest rate risk and credit risk, while also reducing the overall size of the securities portfolio.

Gross gains of $898 and $24, and gross losses of $773 and $5 resulting from sales of available for sale securities were realized for the three months ended June 30, 2014 and 2013, respectively. In the six months ended June 30, 2014 and 2013, gross gains of $2,299 and $126 and gross losses of $1,815 and $292 were recognized, respectively.


 

8


Certain investments in debt securities are reported in the condensed consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2014 and December 31, 2013 was $43,923 and $109,946, which is approximately 28% and 61%, respectively, of the Company’s available-for-sale investment portfolio. These declines primarily resulted from fluctuations in market interest rates after purchase.
 
Except as discussed below, management believes the declines in fair value for these securities are temporary.
 
Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period in which the other-than-temporary impairment (“OTTI”) is identified.
 
The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2014 and December 31, 2013: 
 
 
June 30, 2014
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Securities available for sale:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
 
$
537

 
$
(2
)
 
$
10,886

 
$
(448
)
 
$
11,423

 
$
(450
)
Mortgage-backed and asset-backed securities - government-sponsored enterprises
 
—

 
—

 
30,505

 
(856
)
 
30,505

 
(856
)
Other securities
 
—

 
—

 
1,995

 
(5
)
 
1,995

 
(5
)
 
 
$
537

 
$
(2
)
 
$
43,386

 
$
(1,309
)
 
$
43,923

 
$
(1,311
)
  
 
 
December 31, 2013
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Securities available for sale:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
 
$
43,085

 
$
(1,761
)
 
$
14

 
$
(1
)
 
$
43,099

 
$
(1,762
)
Municipals
 
14,105

 
(882
)
 
351

 
(1
)
 
14,456

 
(883
)
Mortgage-backed and asset-backed securities - government-sponsored enterprises
 
47,875

 
(1,813
)
 
—

 
—

 
47,875

 
(1,813
)
Mortgage-backed and asset-backed securities – private labeled
 
43

 
(1
)
 
838

 
(89
)
 
881

 
(90
)
Other securities
 
1,962

 
(38
)
 
1,673

 
(1,351
)
 
3,635

 
(1,389
)
 
 
$
107,070

 
$
(4,495
)
 
$
2,876

 
$
(1,442
)
 
$
109,946

 
$
(5,937
)
 
U.S. Government Sponsored Enterprise and Municipal Securities
 
The unrealized losses on the Company’s investments in securities issued by U.S. Government sponsored enterprises and municipal securities were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments at a loss and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarily impaired at June 30, 2014.
 

9


Mortgage-Backed Securities
 
The unrealized losses on the Company’s investment in mortgage-backed securities were caused by interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments at a loss and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarily impaired at June 30, 2014.

For identified mortgage-backed securities in the investment portfolio, an extensive, quarterly review is conducted to determine if an other-than-temporary impairment has occurred. Various inputs to the economic models are used to determine if an unrealized loss is other than temporary. The most significant inputs are voluntary prepay rates, default rates, liquidation rates, and loss severity.
 
To determine if the unrealized loss for mortgage-backed securities is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates the current credit enhancement underlying the bond to determine the impact on cash flows. If the Company determines that a given mortgage-backed security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.
 
Other Securities
 
The Company’s unrealized loss on investments in other securities at December 31, 2013 primarily consists of two investments, both of which were sold in the second quarter of 2014.

The first investment is a $2,000 par investment in I-PreTSL I B-2 pooled trust security. The unrealized loss was primarily caused by a sector downgrade by several industry analysts. The determination of no credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment.
 
The second investment is a $2,000 par investment in ALESCO IV Series B2 pooled trust security on which the Company recognized an other-than-temporary impairment loss. The unrealized loss was primarily caused by (a) a decrease in performance and (b) a sector downgrade by several industry analysts. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment.

The credit losses recognized in earnings during the three and six months ended June 30, 2014 and 2013 were as follows: 
 
 
Three Months Ended
June 30,
 
 
2014
 
2013
Mortgage-backed and asset-backed securities – private labeled
 
—

 
15

    Total credit losses recognized in earnings
 
$
—

 
$
15

 
 
Six Months Ended June 30,
 
 
2014
 
2013
Mortgage-backed and asset-backed securities – private labeled
 
—

 
49

    Total credit losses recognized in earnings
 
$
—

 
$
49

 

Credit Losses Recognized on Investments
 
Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other than temporarily impaired.
 

10


The following tables provide information about debt securities for which only a credit loss was recognized in income and other losses are recorded in accumulated other comprehensive income (loss). 
 
Accumulated
Credit Losses
Credit losses on debt securities held
 

April 1, 2014
$
1,150

Realized losses related to OTTI
(1,106
)
Recoveries related to OTTI
(44
)
Additions related to OTTI losses not previously recognized
—

Additions related to increases in previously recognized OTTI losses
—

June 30, 2014
$
—

 
 
Accumulated
Credit Losses
Credit losses on debt securities held
 

April 1, 2013
$
1,505

Realized losses related to OTTI
(178
)
Recoveries related to OTTI
—

Additions related to OTTI losses not previously recognized
—

Additions related to increases in previously recognized OTTI losses
15

June 30, 2013
$
1,342


 
Accumulated
Credit Losses
Credit losses on debt securities held
 

January 1, 2014
$
1,183

Realized losses related to OTTI
(1,139
)
Recoveries related to OTTI
(44
)
Additions related to OTTI losses not previously recognized
—

Additions related to increases in previously recognized OTTI losses
—

June 30, 2014
$
—


 
Accumulated
Credit Losses
Credit losses on debt securities held
 

January 1, 2013
$
1,737

Realized losses related to OTTI
(444
)
Recoveries related to OTTI
—

Additions related to OTTI losses not previously recognized
31

Additions related to increases in previously recognized OTTI losses
18

June 30, 2013
$
1,342



11


Amounts reclassified from accumulated other comprehensive income (loss) and the affected line items in the condensed consolidated statements of income during the three and six months ended June 30, 2014 and 2013, were as follows:
 
 
Amounts Reclassified from
Accumulated Other Comprehensive Income (Loss)
for the Three Months Ended
June 30,
 
Affected Line Item in the
Statements of Income
 
 
2014
 
2013
 
Securities available for sale
 
 

 
 

 
 
Gain realized in earnings
 
$
125

 
$
19

 
Gain (loss) on sale of securities
OTTI losses recognized in earnings
 
—

 
(15
)
 
Other-than-temporary impairment loss recognized in net income
Total reclassified amount before tax
 
125

 
4

 
Income Before Income Taxes
Tax expense
 
39

 
1

 
Income Tax Provision
Total reclassifications out of accumulated other comprehensive income (loss)
 
$
86

 
$
3

 
Net Income
 
 
Amounts Reclassified from
Accumulated Other
Comprehensive Income (Loss)
for the Six Months Ended
June 30,
 
Affected Line Item in the
Statements of Income
 
 
2014
 
2013
 
Securities available for sale
 
 

 
 

 
 
Gain (loss) realized in earnings
 
$
484

 
$
(166
)
 
Gain (loss) on sale of securities
OTTI losses recognized in earnings
 
—

 
(49
)
 
Other-than-temporary impairment loss recognized in net income
Total reclassified amount before tax
 
484

 
(215
)
 
Income Before Income Taxes
Tax expense (benefit)
 
165

 
(75
)
 
Income Tax Provision
Total reclassifications out of accumulated other comprehensive income (loss)
 
$
319

 
$
(140
)
 
Net Income
 
Note 4:        Loans Receivable
 
Loans that management intends to hold until maturity or pay off and for which the Company has the ability to hold for the foreseeable future are reported at their outstanding principal balance adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans.
 
For loans recorded at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.
 

12


Categories of loans include:
 
 
June 30,
2014
 
December 31,
2013
Real estate loans
 
 

 
 

   Residential
 
$
250,262

 
$
191,007

   Commercial
 
201,591

 
142,429

Total real estate loans
 
451,853

 
333,436

Commercial loans
 
71,997

 
55,168

Consumer loans
 
102,843

 
107,562

Total loans
 
626,693

 
496,166

Deferred loan origination costs and premiums and discounts on purchased loans
 
4,985

 
4,987

Allowance for loan losses
 
(5,140
)
 
(5,426
)
Loans receivable - net of allowance for loan losses
 
$
626,538

 
$
495,727

 
The risk characteristics of each loan portfolio segment are as follows:
 
Commercial Real Estate: These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type and geographic location. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, and other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated market areas unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus nonowner-occupied loans.
 
Commercial: Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial loans are secured by the assets being financed and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.
 
Residential and Consumer: With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences. Repayment on residential loans can be impacted by changes in property values on residential properties. Consumer loans are secured by consumer assets such as automobiles, horse trailers, or recreational vehicles. Some consumer loans are unsecured, such as small installment loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

 

13


Allowance for Loan Losses Methodology
 
Company policy is designed to ensure that an adequate allowance for loan losses (“ALLL”) is maintained. The portfolio is segmented by loan type.  The required ALLL for types of performing homogeneous loans which do not have a specific reserve is determined by applying a factor based on historical losses averaged over the past twelve months.  Management believes the historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.  Management adds qualitative factors for observable trends, changes in internal practices, changes in delinquencies and impairments, and external factors.  Observable factors include changes in the composition and size of portfolios, as well as loan terms or concentration levels.  The Company evaluates the impact of internal changes such as management and staff experience levels or modification to loan review processes.  Delinquency trends are scrutinized for both volume and severity of past due, nonaccrual, classified or graded loans as well as any changes in the value of underlying collateral.  Finally, the Company considers the effect of other external factors such as national, regional and local economic and business conditions, as well as competitive, legal and regulatory requirements. All criticized, classified, and impaired loans are evaluated for impairment by applying at least one of three methodologies: present value of future cash flows; fair value of collateral less cost to sell; or the loan’s observable market price.  All troubled debt restructurings (“TDR”) are considered impaired loans.  Loans evaluated for impairment are removed from other pools to prevent double-counting.
 
Provision (Credit) for Loan Losses
 
A provision for estimated losses on loans is charged to operations based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full collectability may not be reasonably assured considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management endeavors to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations.
 
Accounting Standards Codification (“ASC”) Topic 310, Receivables, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral and allows existing methods for recognizing interest income.
 
Policy for Charging Off Loans
 
The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged off to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. All charge-offs are approved by the Chief Credit Officer.
 
The following tables present changes in the balance of the ALLL during the three and six month periods ended June 30, 2014 and 2013: 
 
 
Three Months Ended June 30, 2014
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
1,044

 
$
2,696

 
$
871

 
$
777

 
$
5,388

Provision (credit) charged to expense
 
239

 
(302
)
 
(136
)
 
126

 
(73
)
Losses charged off
 
(89
)
 
—

 
—

 
(166
)
 
(255
)
Recoveries
 
9

 
1

 
—

 
70

 
80

Balance, end of period
 
$
1,203


$
2,395


$
735


$
807

 
$
5,140


14


 
 
Six Months Ended June 30, 2014
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
1,219

 
$
2,517

 
$
819

 
$
871

 
$
5,426

Provision (credit) charged to expense
 
173

 
(123
)
 
(84
)
 
108

 
74

Losses charged off
 
(211
)
 
—

 
—

 
(335
)
 
(546
)
Recoveries
 
22

 
1

 
—

 
163

 
186

Balance, end of period
 
$
1,203

 
$
2,395

 
$
735

 
$
807

 
$
5,140

 
 
 
Three Months Ended June 30, 2013
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
1,022

 
$
3,082

 
$
466

 
$
1,178

 
$
5,748

Provision (credit) charged to expense
 
(49
)
 
74

 
11

 
(12
)
 
24

Losses charged off
 
—

 
(238
)
 
—

 
(162
)
 
(400
)
Recoveries
 
11

 
—

 
70

 
74

 
155

Balance, end of period
 
$
984

 
$
2,918

 
$
547

 
$
1,078

 
$
5,527

 

 
 
Six Months Ended June 30, 2013
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

Balance, beginning of period
 
$
1,149

 
$
3,107

 
$
371

 
$
1,206

 
$
5,833

Provision (credit) charged to expense
 
(130
)
 
49

 
106

 
133

 
158

Losses charged off
 
(54
)
 
(238
)
 
—

 
(398
)
 
(690
)
Recoveries
 
19

 
—

 
70

 
137

 
226

Balance, end of period
 
$
984

 
$
2,918

 
$
547

 
$
1,078

 
$
5,527

 

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2014, and December 31, 2013: 
 
 
June 30, 2014
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
Loans:
 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
250,262

 
$
201,591

 
$
71,997

 
$
102,843

 
$
626,693

Ending balance:  individually evaluated for impairment
 
1,059

 
1,048

 
—

 
241

 
2,348

Ending balance:  collectively evaluated for impairment
 
$
249,203

 
$
200,543

 
$
71,997

 
$
102,602

 
$
624,345

Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

Ending Balance
 
$
1,203

 
$
2,395

 
$
735

 
$
807

 
$
5,140

Ending balance:  individually evaluated for impairment
 
—

 
—

 
—

 
23

 
23

Ending balance:  collectively evaluated for impairment
 
$
1,203

 
$
2,395

 
$
735

 
$
784

 
$
5,117

 

15


 
 
December 31, 2013
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
Loans:
 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
191,007

 
$
142,429

 
$
55,168

 
$
107,562

 
$
496,166

Ending balance:  individually evaluated for impairment
 
1,684

 
1,054

 
—

 
339

 
3,077

Ending balance:  collectively evaluated for impairment
 
$
189,323

 
$
141,375

 
$
55,168

 
$
107,223

 
$
493,089

Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

Ending Balance
 
$
1,219

 
$
2,517

 
$
819

 
$
871

 
$
5,426

Ending balance:  individually evaluated for impairment
 
116

 
98

 
—

 
28

 
242

Ending balance:  collectively evaluated for impairment
 
$
1,103

 
$
2,419

 
$
819

 
$
843

 
$
5,184

 
The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the eight risk grades is as follows:
 
•
Grades 1 & 2 - These grades are assigned to loans with very high credit quality borrowers of investment or near investment grade or where the loan is primarily secured by cash or conservatively margined high quality marketable securities. These borrowers are generally publicly traded, have significant capital strength, possess investment grade public debt ratings, demonstrate low leverage, exhibit stable earnings and growth and have ready access to various financing alternatives.

•
Grades 3 & 4 - Loans assigned these grades include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage.

•
Grade 5 - This grade includes “Pass Grade” loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile.

•
Grade 6 - This grade is for “Special Mention” loans in accordance with regulatory guidelines. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.

•
Grade 7 - This grade includes “Substandard” loans in accordance with regulatory guidelines. Loans categorized in this grade possess a well-defined credit weakness, and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred, and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal, and the accrual of interest has been suspended.

•
Grade 8 - This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

Nonaccrual Loans
 
Any loan which becomes 90 days delinquent or has the full collection of principal and interest in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual, all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual does not relieve the borrower of the obligation to repay interest. A loan

16


placed on nonaccrual may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest.
 
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of June 30, 2014 and December 31, 2013: 
 
 
June 30, 2014
 
 
Commercial
Real Estate
 
Commercial
Rating:
 
 

 
 

1-5 Pass
 
$
198,260

 
$
69,481

6 Special Mention
 
2,283

 
2,516

7 Substandard
 
1,048

 
—

8 Doubtful
 
—

 
—

Total
 
$
201,591

 
$
71,997

 
 
 
June 30, 2014
 
 
Residential
Real Estate
 
Consumer
Performing
 
$
250,236

 
$
102,757

Nonaccrual
 
26

 
86

Total
 
$
250,262

 
$
102,843

 
 
 
December 31, 2013
 
 
Commercial
Real Estate
 
Commercial
Rating:
 
 

 
 

1-5 Pass
 
$
139,052

 
$
54,035

6 Special Mention
 
2,323

 
1,133

7 Substandard
 
1,054

 
—

8 Doubtful
 
—

 
—

Total
 
$
142,429

 
$
55,168

 
 
 
December 31, 2013
 
 
Residential
Real Estate
 
Consumer
Performing
 
$
190,377

 
$
107,412

Nonaccrual
 
630

 
150

Total
 
$
191,007

 
$
107,562

 
The following tables present the Company’s loan portfolio aging analysis as of June 30, 2014 and December 31, 2013: 
 
 
June 30, 2014
 
 
30-59
Days
Past Due
 
60-89
Days
Past Due
 
90 Days 
or More
Past Due
 
Total 
Past Due
 
Current
 
Total
Loans
Receivable
 
Non-
accrual
Loans
 
Total Loans
90 Days or
More Past
Due and
Accruing
Residential real estate
 
$
201

 
$
—

 
$
—

 
$
201

 
$
250,061

 
$
250,262

 
$
26

 
$
—

Commercial real estate
 
—

 
—

 
955

 
955

 
200,636

 
201,591

 
1,048

 
—

Commercial
 
—

 
—

 
—

 
—

 
71,997

 
71,997

 
—

 
—

Consumer
 
121

 
16

 
66

 
203

 
102,640

 
102,843

 
86

 
17

Total
 
$
322

 
$
16

 
$
1,021

 
$
1,359

 
$
625,334

 
$
626,693

 
$
1,160

 
$
17


17


 
 
 
December 31, 2013
 
 
30-59
Days
Past Due
 
60-89
Days
Past Due
 
90 Days 
or More
Past Due
 
Total 
Past Due
 
Current
 
Total
Loans
Receivable
 
Non-
accrual
Loans
 
Total Loans
90 Days or
More Past
Due and
Accruing
Residential real estate
 
$
122

 
$
—

 
$
603

 
$
725

 
$
190,282

 
$
191,007

 
$
630

 
$
—

Commercial real estate
 
—

 
—

 
955

 
955

 
141,474

 
142,429

 
1,054

 
—

Commercial
 
—

 
—

 
—

 
—

 
55,168

 
55,168

 
—

 
—

Consumer
 
484

 
45

 
84

 
613

 
106,949

 
107,562

 
150

 
18

Total
 
$
606

 
$
45

 
$
1,642

 
$
2,293

 
$
493,873

 
$
496,166

 
$
1,834

 
$
18

 
Impaired Loans
 
A loan is designated as impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16) when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with insignificant delays not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.
 
Impaired loans include nonperforming commercial loans but also include loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
 
The following table presents the Company’s impaired loans as of June 30, 2014 and December 31, 2013: 
 
 
June 30, 2014
 
December 31, 2013
 
 
Recorded
Balance
 
Unpaid
Principal
Balance
 
Specific
Allowance
 
Recorded
Balance
 
Unpaid
Principal
Balance
 
Specific
Allowance
Loans without a specific valuation allowance
 
 

 
 

 
 

 
 

 
 

 
 

Residential real estate loans
 
$
1,059

 
$
1,066

 
$
—

 
$
1,551

 
$
1,842

 
$
—

Commercial real estate loans
 
1,048

 
1,506

 
—

 
956

 
2,310

 
—

Commercial loans
 
—

 
—

 
—

 
—

 
—

 
—

Consumer loans
 
190

 
200

 
—

 
271

 
326

 
—

Total
 
2,297

 
2,772

 
—

 
2,778

 
4,478

 
—

Loans with a specific valuation allowance