Loans Receivable, Net | Note 6 - Loans Receivable, net Loans receivable consisted of the following at the dates indicated: September 30, 2018 June 30, 2018 (In thousands) Real estate: One-to-four family $ 63,387 $ 62,110 Multi-family 56,292 57,639 Commercial 156,452 150,050 Construction 64,106 85,866 Land 5,133 5,515 Total real estate 345,370 361,180 Consumer: Home equity 12,522 12,291 Credit cards 2,198 2,284 Automobile 299 372 Other consumer 1,139 960 Total consumer 16,158 15,907 Business: Commercial business 13,098 20,329 Total loans 374,626 397,416 Less: Deferred loan fees and loan premiums, net 915 1,002 Allowance for loan losses 4,420 4,370 Loans receivable, net $ 369,291 $ 392,044 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, 2018: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Three months ended 9/30/18 (In thousands) Allowance for loan losses : Beginning balance $ 339 $ 585 $ 1,478 $ 1,280 $ 83 $ 353 $ 252 $ — $ 4,370 Provision (benefit) for loan losses 41 73 239 (355 ) (21 ) 40 33 — 50 Charge-offs — — — — — (20 ) — — (20 ) Recoveries 14 — — 1 — 5 — — 20 Ending balance $ 394 $ 658 $ 1,717 $ 926 $ 62 $ 378 $ 285 $ — $ 4,420 (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, 2017: One-to- four family Multi- family Commercial real estate Construction Land Consumer (1) Commercial business Unallocated Three months ended 9/30/17 (In thousands) Allowance for loan losses : Beginning balance $ 495 $ 580 $ 1,566 $ 651 $ 120 $ 378 $ 316 $ — $ 4,106 Provision (benefit) for loan losses (207 ) 10 168 169 (1 ) (40 ) (24 ) — 75 Charge-offs — — (200 ) — — (1 ) — — (201 ) Recoveries 14 — — 1 — 17 5 — 37 Ending balance $ 302 $ 590 $ 1,534 $ 821 $ 119 $ 354 $ 297 $ — $ 4,017 (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, 2018 : Recorded Investments Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded One-to-four family $ 703 $ 896 $ — Home equity 316 330 — Commercial business 63 125 — With an allowance recorded One-to-four family $ 2,295 $ 2,305 $ 95 Land 246 246 6 Home equity 252 252 65 Other consumer 12 12 12 Commercial business 141 162 17 Total One-to-four family $ 2,998 $ 3,201 $ 95 Land 246 246 6 Home equity 568 582 65 Other consumer 12 12 12 Commercial business 204 287 17 Total $ 4,028 $ 4,328 $ 195 The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2018 : Recorded Investments Unpaid Principal Balance Related Allowance (In thousands) With no allowance recorded One-to-four family $ 608 $ 794 $ — Home equity 330 345 — Commercial business 285 366 — With an allowance recorded One-to-four family $ 2,341 $ 2,351 $ 85 Land 300 300 13 Home equity 150 150 80 Other consumer 14 14 13 Total One-to-four family $ 2,949 $ 3,145 $ 85 Land 300 300 13 Home equity 480 495 80 Other consumer 14 14 13 Commercial business 285 366 — Total $ 4,028 $ 4,320 $ 191 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, 2018 and 2017: Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (In thousands) With no allowance recorded One-to-four family $ 656 $ 1 $ 1,716 $ 3 Commercial real estate — — 996 — Home equity 323 1 281 1 Commercial business 174 1 480 1 With an allowance recorded One-to-four family $ 2,318 $ 9 $ 3,084 $ 11 Land 273 7 310 7 Home equity 201 1 261 1 Other consumer 13 — — — Commercial business 71 — 12 — Total One-to-four family $ 2,974 $ 10 $ 4,800 $ 14 Commercial real estate — — 996 — Land 273 7 310 7 Home equity 524 2 542 2 Other consumer 13 — — — Commercial business 245 1 492 — Total $ 4,029 $ 20 $ 7,140 $ 23 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, 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 $ 394 $ 658 $ 1,717 $ 926 $ 62 $ 378 $ 285 $ — $ 4,420 Ending balance: individually evaluated for impairment 95 — — — 6 77 17 — 195 Ending balance: collectively evaluated for impairment $ 299 $ 658 $ 1,717 $ 926 $ 56 $ 301 $ 268 $ — $ 4,225 Loans receivable: Ending balance $ 63,387 $ 56,292 $ 156,452 $ 64,106 $ 5,133 $ 16,158 $ 13,098 $ — $ 374,626 Ending balance: individually evaluated for impairment 2,998 — — — 246 580 204 — 4,028 Ending balance: collectively evaluated for impairment $ 60,389 $ 56,292 $ 156,452 $ 64,106 $ 4,887 $ 15,578 $ 12,894 $ — $ 370,598 (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, 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 $ 339 $ 585 $ 1,478 $ 1,280 $ 83 $ 353 $ 252 $ — $ 4,370 Ending balance: individually evaluated for impairment 85 — — — 13 93 — — 191 Ending balance: collectively evaluated for impairment $ 254 $ 585 $ 1,478 $ 1,280 $ 70 $ 260 $ 252 $ — $ 4,179 Loans receivable: Ending balance $ 62,110 $ 57,639 $ 150,050 $ 85,866 $ 5,515 $ 15,907 $ 20,329 $ — $ 397,416 Ending balance: individually evaluated for impairment 2,949 — — — 300 494 285 — 4,028 Ending balance: collectively evaluated for impairment $ 59,161 $ 57,639 $ 150,050 $ 85,866 $ 5,215 $ 15,413 $ 20,044 $ — $ 393,388 (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: September 30, 2018 June 30, 2018 (In thousands) One-to-four family $ 450 $ 507 Home equity 297 207 Commercial business 141 222 Total $ 888 $ 936 There were no loans past due 90 days or more and still accruing interest at September 30, 2018 and June 30, 2018. The following table presents past due loans, net of partial loan charge-offs, by class of loan, as of September 30, 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 $ 330 $ 179 $ 450 $ 959 $ 62,428 $ 63,387 Multi-family — — — — 56,292 56,292 Commercial real estate — — — — 156,452 156,452 Construction — — — — 64,106 64,106 Land — — — — 5,133 5,133 Home equity 57 — 297 354 12,168 12,522 Credit cards 6 4 — 10 2,188 2,198 Automobile — — — — 299 299 Other consumer 3 3 — 6 1,133 1,139 Commercial business — — 141 141 12,957 13,098 Total $ 396 $ 186 $ 888 $ 1,470 $ 373,156 $ 374,626 (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, 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 $ 683 $ 122 $ 507 $ 1,312 $ 60,798 $ 62,110 Multi-family — — — — 57,639 57,639 Commercial real estate — — — — 150,050 150,050 Construction — — — — 85,866 85,866 Land — — — — 5,515 5,515 Home equity 220 — 207 427 11,864 12,291 Credit cards 6 8 — 14 2,270 2,284 Automobile — — — — 372 372 Other consumer 4 — — 4 956 960 Commercial business 9 — 222 231 20,098 20,329 Total $ 922 $ 130 $ 936 $ 1,988 $ 395,428 $ 397,416 (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, 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 $ 62,334 $ 55,047 $ 155,652 $ 62,486 $ 5,133 $ 11,838 $ 2,188 $ 299 $ 1,126 $ 12,898 $ 369,001 Watch 155 1,245 800 1,620 — 198 10 — 3 59 4,090 Special Mention 448 — — — — 189 — — 10 — 647 Substandard 450 — — — — 297 — — — 141 888 Doubtful — — — — — — — — — — — Total $ 63,387 $ 56,292 $ 156,452 $ 64,106 $ 5,133 $ 12,522 $ 2,198 $ 299 $ 1,139 $ 13,098 $ 374,626 The following table presents the internally assigned grade as of June 30, 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 $ 60,525 $ 57,315 $ 148,584 $ 85,866 $ 5,515 $ 11,637 $ 2,270 $ 360 $ 951 $ 19,829 $ 392,852 Watch 689 324 1,466 — — 297 14 12 5 278 3,085 Special Mention 389 — — — — 150 — — 4 — 543 Substandard 507 — — — — 207 — — — 222 936 Doubtful — — — — — — — — — — — Total $ 62,110 $ 57,639 $ 150,050 $ 85,866 $ 5,515 $ 12,291 $ 2,284 $ 372 $ 960 $ 20,329 $ 397,416 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 September 30, 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 September 30, 2018 : September 30, 2018 Accrual Status Nonaccrual Total Modifications (In thousands) One-to-four family $ 2,431 $ 103 $ 2,534 Land 246 — 246 Home equity 121 — 121 Other consumer 12 — 12 Commercial business 63 — 63 Total $ 2,873 $ 103 $ 2,976 The following table presents TDRs by accrual versus nonaccrual status and by loan class as of June 30, 2018 : June 30, 2018 Accrual Status Nonaccrual Total Modifications (In thousands) One-to-four family $ 2,443 $ 108 $ 2,551 Land 299 — 299 Home equity 124 — 124 Other consumer 14 — 14 Commercial business 63 — 63 Total $ 2,943 $ 108 $ 3,051 There were no new TDR loans, or renewals or modifications of existing TDR loans during the three months ended September 30, 2018 and 2017. For the three months ended September 30, 2018 and 2017, there were no TDRs for which there was a payment default within 12 months of their restructure. |