| Loans Receivable, Net | Note 7 - Loans Receivable, net Loans receivable consisted of the following at the dates indicated: September 30, 2015 June 30, 2015 (In thousands) Real estate: One-to-four family $ 64,307 $ 57,944 Multi-family 35,535 43,249 Commercial 133,422 128,306 Construction 11,392 11,731 Land 3,610 4,069 Total real estate 248,266 245,299 Consumer: Home equity 17,116 17,604 Credit cards 3,143 3,289 Automobile 636 686 Other consumer 2,228 2,347 Total consumer 23,123 23,926 Commercial business 18,569 18,987 Total loans 289,958 288,212 Less: Deferred loan fees 1,192 1,047 Allowance for loan losses 3,687 3,721 Loans receivable, net $ 285,079 $ 283,444 Allowance for Loan Losses. The allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The assessment includes analysis of several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties. The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2015: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Three months ended 09/30/15 (In thousands) Allowance for loan losses : Beginning balance $ 1,113 $ 95 $ 262 $ 247 $ 75 $ 445 $ 1,405 $ 79 $ 3,721 Provision (benefit) for loan losses (131 ) 11 417 (140 ) (36 ) 21 (43 ) (79 ) 20 Charge-offs (146 ) — — — — (31 ) (44 ) — (221 ) Recoveries 126 — 1 8 — 31 1 — 167 Ending balance $ 962 $ 106 $ 680 $ 115 $ 39 $ 466 $ 1,319 $ — $ 3,687 (1) Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans. The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2014: One-to- four family Multi- Commercial Construction Land Consumer Commercial Unallocated Three months ended 09/30/14 (In thousands) Allowance for loan losses: Beginning balance $ 1,550 $ 229 $ 682 $ 190 $ 74 $ 587 $ 1,231 $ 81 $ 4,624 Provision (benefit) for loan losses (186 ) 13 37 98 1 28 8 1 — Charge-offs (94 ) (159 ) (340 ) — — (84 ) (86 ) — (763 ) Recoveries 11 — — 12 — 37 73 — 133 Ending balance $ 1,281 $ 83 $ 379 $ 300 $ 75 $ 568 $ 1,226 $ 82 $ 3,994 (1) Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans. A loan is considered impaired when the Company has determined that it may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case by case basis, after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan by loan basis for all loans in the portfolio except for the smaller groups of homogeneous consumer loans in the portfolio. The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2015 : Recorded Investments Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded One-to-four family $ 1,834 $ 2,291 $ — Land 179 192 — Home equity 63 65 — Commercial business 198 307 — With an allowance recorded One-to-four family $ 7,679 $ 7,710 $ 500 Land 322 322 2 Home equity 230 230 28 Other consumer 30 33 9 Commercial business 769 778 195 Total One-to-four family $ 9,513 $ 10,001 $ 500 Land 501 514 2 Home equity 293 295 28 Other consumer 30 33 9 Commercial business 967 1,085 195 Total $ 11,304 $ 11,928 $ 734 The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2015 : Recorded Investments Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded One-to-four family $ 1,557 $ 1,860 $ — Land 231 245 — Home equity 64 65 — Other consumer 31 32 — Commercial business 64 126 — With an allowance recorded One-to-four family $ 7,716 $ 7,743 $ 500 Land 408 408 3 Home equity 212 212 26 Commercial business 868 868 211 Total One-to-four family $ 9,273 $ 9,603 $ 500 Land 639 653 3 Home equity 276 277 26 Other consumer 31 32 — Commercial business 932 994 211 Total $ 11,151 $ 11,559 $ 740 The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended September 30, 2015 and 2014: Three Months Ended September 30, 2015 Three Months Ended September 30, 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded One-to-four family $ 2,076 $ 4 $ 2,630 $ 6 Commercial real estate — — 110 — Land 219 1 321 1 Home equity 65 — 107 — Commercial business 217 1 95 1 With an allowance recorded One-to-four family $ 7,727 $ 27 $ 8,199 $ 28 Multi-family — — 79 — Commercial real estate — — 925 — Land 365 7 463 2 Home equity 221 1 260 1 Commercial business 823 — 275 1 Total One-to-four family $ 9,803 $ 31 $ 10,829 $ 34 Multi-family — — 79 — Commercial real estate — — 1,035 — Land 584 8 784 3 Home equity 286 1 367 1 Commercial business 1,040 1 370 2 Total $ 11,713 $ 41 $ 13,464 $ 40 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2015 : One-to-four family Multi- family Commercial real estate Construction Land Consumer(1) Commercial business Unallocated Total (In thousands) Allowance for loan losses: Ending balance $ 962 $ 106 $ 680 $ 115 $ 39 $ 466 $ 1,319 $ — $ 3,687 Ending balance: individually evaluated for impairment 500 — — — 2 37 195 — 734 Ending balance: collectively evaluated for impairment $ 462 $ 106 $ 680 $ 115 $ 37 $ 429 $ 1,124 $ — $ 2,953 Loans receivable: Ending balance $ 64,307 $ 35,535 $ 133,422 $ 11,392 $ 3,610 $ 23,123 $ 18,569 $ — $ 289,958 Ending balance: individually evaluated for impairment 9,513 — — — 501 323 967 — 11,304 Ending balance: collectively evaluated for impairment $ 54,794 $ 35,535 $ 133,422 $ 11,392 $ 3,109 $ 22,800 $ 17,602 $ — $ 278,654 (1) Consumer loans include home equity, credit cards, auto and other consumer loans. The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2015: One-to-four family Multi- family Commercial real estate Construction Land Consumer(1) Commercial business Unallocated Total (In thousands) Allowance for loan losses: Ending balance $ 1,113 $ 95 $ 262 $ 247 $ 75 $ 445 $ 1,405 $ 79 $ 3,721 Ending balance: individually evaluated for impairment 500 — — — 3 26 211 — 740 Ending balance: collectively evaluated for impairment $ 613 $ 95 $ 262 $ 247 $ 72 $ 419 $ 1,194 $ 79 $ 2,981 Loans receivable: Ending balance $ 57,944 $ 43,249 $ 128,306 $ 11,731 $ 4,069 $ 23,926 $ 18,987 $ — $ 288,212 Ending balance: individually evaluated for impairment 9,273 — — — 639 307 932 — 11,151 Ending balance: collectively evaluated for impairment $ 48,671 $ 43,249 $ 128,306 $ 11,731 $ 3,430 $ 23,619 $ 18,055 $ — $ 277,061 (1) Consumer loans include home equity, credit cards, auto, and other consumer loans. Nonaccrual and Past Due Loans . Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual when, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions. The following table presents the recorded investment in nonaccrual and loans past due 90 days still accruing interest by type of loans as of the dates indicated: September 30, 2015 June 30, 2015 (In thousands) One-to-four family $ 1,388 $ 1,263 Credit cards 5 6 Other consumer 30 31 Commercial business 873 711 Total $ 2,296 $ 2,011 The following table presents past due loans, net of partial loan charge-offs, by class, as of September 30, 2015 : 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due (1) Total Past Due Current Total Loans (In thousands) One-to-four family $ 1,376 $ 334 $ 1,388 $ 3,098 $ 61,209 $ 64,307 Multi-family — — — — 35,535 35,535 Commercial real estate — — — — 133,422 133,422 Construction — — — — 11,392 11,392 Land 37 — — 37 3,573 3,610 Home equity 90 16 — 106 17,010 17,116 Credit cards 32 38 5 75 3,068 3,143 Automobile 7 — — 7 629 636 Other consumer 15 29 30 74 2,154 2,228 Commercial business 64 — 873 937 17,632 18,569 Total $ 1,621 $ 417 $ 2,296 $ 4,334 $ 285,624 $ 289,958 (1) Includes loans on nonaccrual status. The following table presents past due loans, net of partial loan charge-offs, by class as of June 30, 2015 : 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due (1) Total Past Due Current Total Loans (In thousands) One-to-four family $ 616 $ 552 $ 1,263 $ 2,431 $ 55,513 $ 57,944 Multi-family — — — — 43,249 43,249 Commercial real estate — — — — 128,306 128,306 Construction — — — — 11,731 11,731 Land — — — — 4,069 4,069 Home equity 15 16 — 31 17,573 17,604 Credit cards 8 26 6 40 3,249 3,289 Automobile 9 — — 9 677 686 Other consumer 16 — 31 47 2,300 2,347 Commercial business 64 273 711 1,048 17,939 18,987 Total $ 728 $ 867 $ 2,011 $ 3,606 $ 284,606 $ 288,212 (1) Includes loans on nonaccrual status. Credit Quality Indicators. We utilize a ten-point risk rating system and assign a risk rating for all credit exposures. The risk rating system is designed to define the basic characteristics and identify risk elements of each credit extension. Credits risk rated 1 through 7 are considered to be “pass” credits. Pass credits can be assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Bank. Pass credits also include credits that are on our watch and special mention lists, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower's financial capacity and threaten their ability to fulfill debt obligations in the future. A seasoned loan with a Debt Service Coverage Ratio ("DSCR") of greater than 1.00 is the minimum acceptable level for a " Pass Credit". Particular attention is paid to the coverage trend analysis as any loan with a declining DSCR trend may warrant a higher risk grade even if the current coverage is at or above the 1.00 threshold. Credits classified as Watch are risk rated 6 and possess weaknesses that deserve management's close attention. These assets do not expose the Bank to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. We use this rating when a material documentation deficiency exists but correction is anticipated within an acceptable time frame. A loan classified as Watch may have the following characteristics: • Acceptable asset quality, but requiring increased monitoring. Strained liquidity and less than anticipated performance. The loan may be fully leveraged. • Apparent management weakness, perhaps demonstrated by an irregular flow of adequate and/or timely performance information required to support the credit. • The borrower has a plausible plan to correct problem(s) in the near future that is devoid of material uncertainties. • Lacks reserve capacity, so the risk rating will improve or decline in relatively short time (results of corrective actions should be apparent within six months or less). Credits classified as Special Mention are risk rated 7. These credits have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. A loan classified as Special Mention may have the following characteristics: • Performance is poor or significantly less than expected. A debt service deficiency either exists or cannot be ruled out. • Generally an undesirable business credit. Assets in this category are protected, but are potentially weak. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard. Special Mention assets have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Bank's credit position at some future date. • Assets which might be detailed in this category include credits that the lending officer may be unable to supervise properly because of lack of expertise, an inadequate loan agreement, the condition of and control over collateral, failure to obtain proper documentation, or any other deviations from prudent lending practices. • An adverse trend in the borrower's operations or an imbalanced position in the balance sheet which does not jeopardize liquidation may best be handled by this classification. • A Special Mention classification should not be used as a compromise between a pass and substandard rating. Assets in which actual, not potential, weaknesses are evident and significant, and should be considered for more serious criticism. A loan classified as Substandard is risk rated 8. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. An asset is considered Substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged. A loan classified as Substandard may have the following characteristics: • Unacceptable business credit. The asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. • Though no loss is envisioned, the outlook is sufficiently uncertain to preclude ruling out the possibility. Some liquidation of assets will likely be necessary as a corrective measure. • Assets in this category may demonstrate performance problems such as debt servicing deficiencies with no immediate relief, including having a DSCR of less than 1.00 . Borrowers have an inability to adjust to prolonged and unfavorable industry or economic trends. Management's character and/or effectiveness have become suspect. A loan classified as Doubtful is risk rated 9 and has all the inherent weaknesses as those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable is improbable. A loan classified as Doubtful is risk rated 9 and has the following characteristics: • The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. • Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. A loan risk rated 10 is a loan for which a total loss is expected. A loan classified as a Loss has the following characteristics: • An uncollectible asset or one of such little value that it does not warrant classification as an active, earning asset. Such an asset may, however, have recovery or salvageable value, but not to the point of deferring full write off, even though some recovery may occur in the future. • The Bank will charge off such assets as a loss during the accounting period in which they were identified. • Loan to be eliminated from the active loan reporting system via charge off. The following table presents the internally assigned grade as of September 30, 2015 , by class of loans: One-to- four family Multi- family Commercial real estate Construction Land Home equity Credit cards Automobile Other consumer Commercial business Total (In thousands) Grade: Pass $ 55,118 $ 35,079 $ 130,179 $ 11,392 $ 3,109 $ 16,167 $ 3,069 $ 569 $ 2,082 $ 16,966 $ 273,730 Watch 5,088 456 2,028 — 322 612 69 67 87 603 9,332 Special Mention 2,346 — 1,215 — 179 316 — — 29 63 4,148 Substandard 1,755 — — — — 21 5 — 30 937 2,748 Doubtful — — — — — — — — — — — Total $ 64,307 $ 35,535 $ 133,422 $ 11,392 $ 3,610 $ 17,116 $ 3,143 $ 636 $ 2,228 $ 18,569 $ 289,958 The following table presents the credit risk profile based on payment activity as of September 30, 2015 , by class of loans: One-to- four family Multi-family Commercial real estate Construction Land Home equity Credit cards Automobile Other consumer Commercial business Total (In thousands) Performing $ 62,919 $ 35,535 $ 133,422 $ 11,392 $ 3,610 $ 17,116 $ 3,138 $ 636 $ 2,198 $ 17,696 $ 287,662 Nonperforming (1) 1,388 — — — — — 5 — 30 873 2,296 Total $ 64,307 $ 35,535 $ 133,422 $ 11,392 $ 3,610 $ 17,116 $ 3,143 $ 636 $ 2,228 $ 18,569 $ 289,958 (1) Loans that are more than 90 days past due and nonaccrual loans are considered nonperforming. The following table presents the internally assigned grade as of June 30, 2015 , by class of loans: One-to- four family Multi-family Commercial real estate Construction Land Home equity Credit cards Automobile Other consumer Commercial business Total (In thousands) Grade: Pass $ 49,119 $ 42,884 $ 125,586 $ 11,731 $ 3,430 $ 16,585 $ 3,249 $ 615 $ 2,214 $ 16,981 $ 272,394 Watch 2,151 — 2,044 — — 697 34 71 102 915 6,014 Special Mention 4,755 — 676 — 231 301 — — — 159 6,122 Substandard 1,919 365 — — 408 21 6 — 31 932 3,682 Doubtful — — — — — — — — — — — Total $ 57,944 $ 43,249 $ 128,306 $ 11,731 $ 4,069 $ 17,604 $ 3,289 $ 686 $ 2,347 $ 18,987 $ 288,212 The following table presents the credit risk profile based on payment activity as of June 30, 2015 , by class of loans: One-to- four family Multi-family Commercial real estate Construction Land Home equity Credit cards Automobile Other consumer Commercial business Total (In thousands) Performing $ 56,681 $ 43,249 $ 128,306 $ 11,731 $ 4,069 $ 17,604 $ 3,283 $ 686 $ 2,316 $ 18,276 $ 286,201 Nonperforming (1) 1,263 — — — — — 6 — 31 711 2,011 Total $ 57,944 $ 43,249 $ 128,306 $ 11,731 $ 4,069 $ 17,604 $ 3,289 $ 686 $ 2,347 $ 18,987 $ 288,212 (1) Loans that are more than 90 days past due and nonaccrual loans are considered nonperforming. Troubled Debt Restructures . At September 30, 2015 and June 30, 2015, troubled debt restructured loans (“TDRs”), included in impaired loans above, totaled $9.7 million with $823,000 in nonaccrual and $9.8 million with $681,000 in nonaccrual, respectively. Restructured loans are an option that the Bank uses to minimize risk of loss and are a concession granted to a borrower experiencing financial difficulties that it would not otherwise consider. The modifications have included items such as lowering the interest rate on the loan for a period of time and extending the maturity date of the loan. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and is in the Bank's best interest. At September 30, 2015 , there were no commitments to lend additional funds to borrowers whose loans have been modified in a TDR. The following table presents TDRs by accrual versus nonaccrual status and by loan class as of September 30, 2015 : September 30, 2015 Accrual Status Nonaccrual Total Modifications (In thousands) One-to-four family $ 7,975 $ 667 $ 8,642 Land 501 — 501 Home equity 293 — 293 Commercial business 94 156 250 Total $ 8,863 $ 823 $ 9,686 The following table presents TDRs by accrual versus nonaccrual status and by loan class as of June 30, 2015 : June 30, 2015 Accrual Status Nonaccrual Total Modifications (In thousands) One-to-four family $ 8,010 $ 681 $ 8,691 Land 639 — 639 Home equity 276 — 276 Commercial business 221 — 221 Total $ 9,146 $ 681 $ 9,827 The following tables present TDRs and their recorded investment prior to the modification and after the modification for TDR transactions that originated during the three months ended September 30, 2015 and 2014: Three Months Ended September 30, 2015 Three Months Ended September 30, 2014 Number of Contracts Pre-TDR Recorded Investment Post-TDR Recorded Investment Number of Pre-TDR Recorded Investment Post-TDR Recorded Investment (Dollars in thousands) One-to-four family — $ — $ — 1 $ 197 $ 196 Total — $ — $ — 1 $ 197 $ 196 The following table presents TDRs for which there was a payment default within 12 months of their restructure for the periods indicated: Three Months Ended September 30, 2015 Three Months Ended September 30, 2014 Number of Contracts Number of Contracts (Dollars in thousands) One-to-four family — $ — 6 $ 1,605 Home equity — — 2 161 Commercial business — — 1 64 Total — $ — 9 $ 1,830 |
