| Loans Receivable, Net | Note 6 - Loans Receivable, net Loans receivable consisted of the following at the dates indicated: March 31, 2018 June 30, 2017 (In thousands) Real estate: One-to-four family $ 62,788 $ 59,735 Multi-family 58,847 60,500 Commercial 152,928 155,525 Construction 85,247 49,151 Land 6,234 8,054 Total real estate 366,044 332,965 Consumer: Home equity 13,309 13,991 Credit cards 2,346 2,596 Automobile 392 627 Other consumer 1,310 1,524 Total consumer 17,357 18,738 Business: Commercial business 20,575 31,603 Total loans 403,976 383,306 Less: Deferred loan fees and loan premiums, net 1,146 1,292 Allowance for loan losses 4,257 4,106 Loans receivable, net $ 398,573 $ 377,908 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 March 31, 2018: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Three months ended 3/31/18 (In thousands) Allowance for loan losses : Beginning balance $ 355 $ 561 $ 1,342 $ 1,085 $ 96 $ 267 $ 422 $ — $ 4,128 Provision (benefit) for loan losses (30 ) 6 109 161 (4 ) 44 (166 ) — 120 Charge-offs — — — — — (18 ) — — (18 ) Recoveries 15 — — 1 — 11 — — 27 Ending balance $ 340 $ 567 $ 1,451 $ 1,247 $ 92 $ 304 $ 256 $ — $ 4,257 (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 nine months ended March 31, 2018: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Nine months ended 3/31/18 (In thousands) Allowance for loan losses : Beginning balance $ 495 $ 580 $ 1,566 $ 651 $ 120 $ 378 $ 316 $ — $ 4,106 Provision (benefit) for loan losses (199 ) (13 ) 85 593 (28 ) (73 ) (65 ) — 300 Charge-offs — — (200 ) — — (34 ) — — (234 ) Recoveries 44 — — 3 — 33 5 — 85 Ending balance $ 340 $ 567 $ 1,451 $ 1,247 $ 92 $ 304 $ 256 $ — $ 4,257 (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 March 31, 2017: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Three months ended 3/31/17 (In thousands) Allowance for loan losses : Beginning balance $ 768 $ 430 $ 1,268 $ 480 $ 103 $ 517 $ 295 $ — $ 3,861 Provision (benefit) for loan losses (228 ) 111 121 151 26 (83 ) 37 — 135 Charge-offs — — (2 ) — — (62 ) — — (64 ) Recoveries 11 — — 1 — 14 1 — 27 Ending balance $ 551 $ 541 $ 1,387 $ 632 $ 129 $ 386 $ 333 $ — $ 3,959 (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 nine months ended March 31, 2017: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Nine months ended 3/31/17 (In thousands) Allowance for loan losses : Beginning balance $ 798 $ 454 $ 1,333 $ 271 $ 75 $ 516 $ 332 $ — $ 3,779 Provision (benefit) for loan losses (344 ) 87 166 323 54 5 (6 ) — 285 Charge-offs — — (112 ) — — (181 ) — — (293 ) Recoveries 97 — — 38 — 46 7 — 188 Ending balance $ 551 $ 541 $ 1,387 $ 632 $ 129 $ 386 $ 333 $ — $ 3,959 (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 March 31, 2018 : Recorded Investments Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded One-to-four family $ 784 $ 967 $ — Home equity 270 283 — Commercial business 291 367 — With an allowance recorded One-to-four family $ 2,709 $ 2,719 $ 94 Land 302 302 15 Home equity 222 222 39 Other consumer 15 15 15 Commercial business 40 42 16 Total One-to-four family $ 3,493 $ 3,686 $ 94 Land 302 302 15 Home equity 492 505 39 Other consumer 15 15 15 Commercial business 331 409 16 Total $ 4,633 $ 4,917 $ 179 The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2017 : Recorded Investments Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded One-to-four family $ 1,818 $ 1,991 $ — Commercial real estate 1,992 1,992 — Home equity 299 303 — Commercial business 606 668 — With an allowance recorded One-to-four family $ 3,210 $ 3,220 $ 143 Land 311 311 22 Home equity 262 262 32 Commercial business 23 23 1 Total One-to-four family $ 5,028 $ 5,211 $ 143 Commercial real estate 1,992 1,992 — Land 311 311 22 Home equity 561 565 32 Commercial business 629 691 1 Total $ 8,521 $ 8,770 $ 198 The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three and nine months ended March 31, 2018: Three Months Ended March 31, 2018 Nine Months Ended March 31, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded One-to-four family $ 1,459 $ 1 $ 1,301 $ 3 Commercial real estate — — 996 — Home equity 274 1 285 4 Commercial business 177 2 449 6 With an allowance recorded One-to-four family $ 2,568 $ 31 $ 2,960 $ 93 Land 304 7 307 14 Home equity 148 3 242 8 Other consumer 16 — 8 — Commercial business 163 — 32 — Total One-to-four family $ 4,027 $ 32 $ 4,261 $ 96 Commercial real estate — — 996 — Land 304 7 307 14 Home equity 422 4 527 12 Other consumer 16 — 8 — Commercial business 340 2 481 6 Total $ 5,109 $ 45 $ 6,580 $ 128 The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three and nine months ended March 31, 2017: Three Months Ended March 31, 2017 Nine Months Ended March 31, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded One-to-four family $ 2,186 $ 14 $ 2,257 $ 42 Commercial real estate 202 — 260 — Land 169 2 171 7 Home equity 73 1 70 2 Commercial business 239 3 239 10 With an allowance recorded One-to-four family $ 4,527 $ 38 $ 5,508 $ 115 Land 315 7 315 15 Home equity 334 3 315 10 Commercial business 68 — 75 1 Total One-to-four family $ 6,713 $ 52 $ 7,765 $ 157 Commercial real estate 202 — 260 — Land 484 9 486 22 Home equity 407 4 385 12 Commercial business 307 3 314 11 Total $ 8,113 $ 68 $ 9,210 $ 202 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 March 31, 2018 : 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 $ 340 $ 567 $ 1,451 $ 1,247 $ 92 $ 304 $ 256 $ — $ 4,257 Ending balance: individually evaluated for impairment 94 — — — 15 54 16 — 179 Ending balance: collectively evaluated for impairment $ 246 $ 567 $ 1,451 $ 1,247 $ 77 $ 250 $ 240 $ — $ 4,078 Loans receivable: Ending balance $ 62,788 $ 58,847 $ 152,928 $ 85,247 $ 6,234 $ 17,357 $ 20,575 $ — $ 403,976 Ending balance: individually evaluated for impairment 3,493 — — — 302 507 331 — 4,633 Ending balance: collectively evaluated for impairment $ 59,295 $ 58,847 $ 152,928 $ 85,247 $ 5,932 $ 16,850 $ 20,244 $ — $ 399,343 (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, 2017: 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 $ 495 $ 580 $ 1,566 $ 651 $ 120 $ 378 $ 316 $ — $ 4,106 Ending balance: individually evaluated for impairment 143 — — — 22 32 1 — 198 Ending balance: collectively evaluated for impairment $ 352 $ 580 $ 1,566 $ 651 $ 98 $ 346 $ 315 $ — $ 3,908 Loans receivable: Ending balance $ 59,735 $ 60,500 $ 155,525 $ 49,151 $ 8,054 $ 18,738 $ 31,603 $ — $ 383,306 Ending balance: individually evaluated for impairment 5,028 — 1,992 — 311 561 629 — 8,521 Ending balance: collectively evaluated for impairment $ 54,707 $ 60,500 $ 153,533 $ 49,151 $ 7,743 $ 18,177 $ 30,974 $ — $ 374,785 (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 loans by type of loans as of the dates indicated: March 31, 2018 June 30, 2017 (In thousands) One-to-four family $ 682 $ 1,170 Commercial — 1,992 Home equity 216 242 Commercial business 268 300 Total $ 1,166 $ 3,704 There were no loans past due 90 days or more and still accruing interest at March 31, 2018 and June 30, 2017. The following table presents past due loans, net of partial loan charge-offs, by class of loan, as of March 31, 2018 : 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 $ 97 $ — $ 682 $ 779 $ 62,009 $ 62,788 Multi-family — — — — 58,847 58,847 Commercial real estate — — — — 152,928 152,928 Construction — — — — 85,247 85,247 Land — — — — 6,234 6,234 Home equity — — 216 216 13,093 13,309 Credit cards 1 — — 1 2,345 2,346 Automobile — — — — 392 392 Other consumer 9 5 — 14 1,296 1,310 Commercial business — — 268 268 20,307 20,575 Total $ 107 $ 5 $ 1,166 $ 1,278 $ 402,698 $ 403,976 (1) Includes loans on nonaccrual status. The following table presents past due loans, net of partial loan charge-offs, by class of loan as of June 30, 2017 : 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 $ 15 $ — $ 1,170 $ 1,185 $ 58,550 $ 59,735 Multi-family — — — — 60,500 60,500 Commercial real estate 187 — 1,992 2,179 153,346 155,525 Construction — — — — 49,151 49,151 Land — — — — 8,054 8,054 Home equity 16 4 242 262 13,729 13,991 Credit cards 13 — — 13 2,583 2,596 Automobile — — — — 627 627 Other consumer — 8 — 8 1,516 1,524 Commercial business 107 — 300 407 31,196 31,603 Total $ 338 $ 12 $ 3,704 $ 4,054 $ 379,252 $ 383,306 (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 March 31, 2018 , 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 $ 61,174 $ 58,330 $ 151,441 $ 85,247 $ 6,234 $ 12,643 $ 2,345 $ 392 $ 1,304 $ 19,835 $ 398,945 Watch 695 517 1,487 — — 300 1 — — 472 3,472 Special Mention 249 — — — — 150 — — 6 — 405 Substandard 670 — — — — 216 — — — 268 1,154 Doubtful — — — — — — — — — — — Total $ 62,788 $ 58,847 $ 152,928 $ 85,247 $ 6,234 $ 13,309 $ 2,346 $ 392 $ 1,310 $ 20,575 $ 403,976 The following table presents the internally assigned grade as of June 30, 2017 , 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 $ 57,075 $ 59,973 $ 150,762 $ 49,151 $ 7,743 $ 13,202 $ 2,583 $ 627 $ 1,510 $ 29,972 $ 372,598 Watch 984 527 2,771 — 311 361 13 — 6 1,224 6,197 Special Mention 646 — — — — 36 — — 1 107 790 Substandard 1,030 — 1,992 — — 392 — — 7 300 3,721 Doubtful — — — — — — — — — — — Total $ 59,735 $ 60,500 $ 155,525 $ 49,151 $ 8,054 $ 13,991 $ 2,596 $ 627 $ 1,524 $ 31,603 $ 383,306 Troubled Debt Restructures . A troubled debt restructure ("TDR") is a loan where the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider so that the borrower can continue to make payments while minimizing the Company's potential loss. 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 March 31, 2018 , 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 March 31, 2018 : March 31, 2018 Accrual Status Nonaccrual Total Modifications (In thousands) One-to-four family $ 2,811 $ 113 $ 2,924 Land 302 — 302 Home equity 126 — 126 Other consumer 15 — 15 Commercial business 63 — 63 Total $ 3,317 $ 113 $ 3,430 The following table presents TDRs by accrual versus nonaccrual status and by loan class as of June 30, 2017 : June 30, 2017 Accrual Status Nonaccrual Total Modifications (In thousands) One-to-four family $ 3,622 $ 131 $ 3,753 Land 311 — 311 Home equity 169 — 169 Commercial business 87 — 87 Total $ 4,189 $ 131 $ 4,320 There were no new TDR loans, or renewals or modifications of existing TDR loans during the three and nine months ended March 31, 2018. For both the three and nine months ended March 31, 2018 and 2017, there were no TDRs for which there was a payment default within 12 months of their restructure. |
