Loans Receivable | Note 5. Loans Receivable Loans receivable are summarized as follows (in thousands): December 31, June 30, 2017 2017 Mortgage loans: Residential $ 213,716 $ 217,778 Commercial 481,169 437,651 Construction 16,379 22,404 Net deferred loan origination costs 210 397 Total mortgages 711,474 678,230 Commercial and consumer loans: Commercial loans 31,276 33,297 Other loans secured 46,056 46,802 Home equity lines of credit 40,158 41,927 Consumer and installment loans 12,860 13,765 Net deferred loan origination costs 767 777 Total commercial and consumer loans 131,117 136,568 Total loans receivable 842,591 814,798 Allowance for loan losses (4,471 ) (5,150 ) Loans receivable, net $ 838,120 $ 809,648 In 2015, the Company completed a merger with CMS Bancorp and its wholly owned subsidiary, CMS Bank. References to acquired loans in this note pertain only to those loans acquired as part of the merger. The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six months ended December 31, 2017 and 2016 (in thousands): Three Months Ended December 31, 2017 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 407 $ (5 ) $ - $ - $ 402 Commercial 2,709 (23 ) - - 2,686 Construction 1,160 237 (997 ) - 400 Commercial loans 345 (23 ) - - 322 Other loans secured 404 (15 ) - - 389 Home equity lines of credit 77 (3 ) - - 74 Consumer and installment loans 140 (7 ) - - 133 Acquired: Residential 26 39 - - 65 Total $ 5,268 $ 200 $ (997 ) $ - $ 4,471 Three Months Ended December 31, 2016 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 238 $ - $ - $ - $ 238 Commercial 2,121 909 - 1 3,031 Construction 302 34 - - 336 Commercial loans 559 (458 ) - 400 501 Other loans secured 361 (22 ) - - 339 Home equity lines of credit 70 - - - 70 Consumer and installment loans 414 97 (398 ) - 113 Acquired: Commercial loans - 2 (2 ) - - Total $ 4,065 $ 562 $ (400 ) $ 401 $ 4,628 Six Months Ended December 31, 2017 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 360 $ 59 $ (17 ) $ - $ 402 Commercial 2,589 97 - - 2,686 Construction 1,150 247 (997 ) - 400 Commercial loans 440 (118 ) - - 322 Other loans secured 365 24 - - 389 Home equity lines of credit 76 (2 ) - - 74 Consumer and installment loans 144 (11 ) - - 133 Acquired: Residential 26 39 - - 65 Total $ 5,150 $ 335 $ (1,014 ) $ - $ 4,471 Six Months Ended December 31, 2016 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 237 $ (69 ) $ - $ 70 $ 238 Commercial 2,149 863 - 19 3,031 Construction 269 67 - - 336 Commercial loans 604 (676 ) - 573 501 Other loans secured 397 168 (324 ) 98 339 Home equity lines of credit 73 (3 ) - - 70 Consumer and installment loans 313 198 (398 ) - 113 Acquired: - Residential - 38 (38 ) - - Commercial loans - 2 (2 ) - - Total $ 4,042 $ 588 $ (762 ) $ 760 $ 4,628 The following tables present the balance in the allowance for loan losses and the recorded investment in loans, excluding net deferred fees and accrued interest, by portfolio segment, and based on impairment method as of December 31, 2017 and June 30, 2017 (in thousands): December 31, 2017 Loans Allowance for Loan Losses Individually Evaluated for Impairment Collectively Evaluated for Impairment Acquired With Deteriorated Credit Quality Total Individually Evaluated for Impairment Collectively Evaluated for Impairment Acquired With Deteriorated Credit Quality Total Residential $ 3,499 $ 208,900 $ 1,317 $ 213,716 $ 190 $ 212 $ 65 $ 467 Commercial 2,438 477,238 1,493 481,169 - 2,686 - 2,686 Construction 2,260 14,119 - 16,379 276 124 - 400 Commercial loans 351 30,925 - 31,276 75 247 - 322 Other loans secured 4,165 41,891 - 46,056 2 387 - 389 Home equity lines of credit 480 39,505 173 40,158 5 69 - 74 Consumer and installment loans - 12,840 20 12,860 - 133 - 133 Total $ 13,193 $ 825,418 $ 3,003 $ 841,614 $ 548 $ 3,858 $ 65 $ 4,471 June 30, 2017 Loans Allowance for Loan Losses Individually Evaluated for Impairment Collectively Evaluated for Impairment Acquired With Deteriorated Credit Quality Total Individually Evaluated for Impairment Collectively Evaluated for Impairment Acquired With Deteriorated Credit Quality Total Residential $ 4,471 $ 211,983 $ 1,324 $ 217,778 $ 131 $ 229 $ 26 $ 386 Commercial 2,411 433,416 1,824 437,651 - 2,589 - 2,589 Construction 3,661 18,743 - 22,404 997 153 - 1,150 Commercial loans 356 32,941 - 33,297 7 433 - 440 Other loans secured 5,813 40,989 - 46,802 2 363 - 365 Home equity lines of credit 610 41,140 177 41,927 5 71 - 76 Consumer and installment loans - 13,723 42 13,765 - 144 - 144 Total $ 17,322 $ 792,935 $ 3,367 $ 813,624 $ 1,142 $ 3,982 $ 26 $ 5,150 The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by class of loans as of December 31, 2017 and June 30, 2017 (in thousands): December 31, 2017 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 2,940 $ 2,721 $ - Commercial 2,948 2,438 - Other loans secured 7,558 3,088 - Home equity lines of credit 473 469 - With a related allowance recorded: Residential 747 778 190 Construction 3,257 2,260 276 Commercial loans 351 351 75 Other loans secured 1,077 1,077 2 Home equity lines of credit 11 11 5 Total $ 19,362 $ 13,193 $ 548 June 30, 2017 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 4,216 $ 4,014 $ - Commercial 2,935 2,411 - Construction 404 404 - Commercial loans 276 277 - Other loans secured 9,157 4,702 - Home equity lines of credit 599 599 - With a related allowance recorded: Residential 395 457 131 Construction 3,257 3,257 997 Commercial loans 79 79 7 Other loans secured 1,111 1,111 2 Home equity lines of credit 11 11 5 Total $ 22,440 $ 17,322 $ 1,142 The table below presents the average recorded investment and interest income recognized on loans individually evaluated for impairment, by class of loans, for the three and six months ended December 31, 2017 and 2016 (in thousands): Three months ended Three months ended December 31, 2017 December 31, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 3,027 $ 124 $ 3,725 $ 3 Commercial 2,454 27 2,303 31 Commercial loans - - 91 1 Other loans secured 3,488 77 5,489 66 Home equity lines of credit 571 20 551 - With a related allowance recorded: Residential 778 3 - - Commercial - - 3,132 25 Construction 3,008 - 131 - Commercial loans 352 - - - Other loans secured 1,087 13 - - Home equity lines of credit 11 - - - Total $ 14,776 $ 264 $ 15,422 $ 126 Six Months Ended Six Months Ended December 31, 2017 December 31, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 3,431 $ 166 $ 3,753 $ 6 Commercial 2,447 54 2,311 63 Construction 173 17 - - Commercial loans - - 92 2 Other loans secured 4,002 160 5,513 134 Home equity lines of credit 593 20 551 (2 ) With a related allowance recorded: Residential 686 7 - - Commercial - - 3,141 52 Construction 3,115 - 131 - Commercial loans 353 4 - - Other loans secured 1,095 27 - - Home equity lines of credit 11 - - - Total $ 15,906 $ 455 $ 15,492 $ 255 The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by class of loans as of December 31, 2017 and June 30, 2017 (in thousands): Loans Past Due Over 90 Days Nonaccrual and Still Accruing December 31, June 30, December 31, June 30, 2017 2017 2017 2017 Originated: Residential $ 1,772 $ 2,581 $ - $ - Commercial 258 - - - Construction 2,260 3,661 - - Commercial loans 275 - - - Other loans secured 1,368 2,959 - - Home equity lines of credit 100 302 - - Acquired: Residential 1,281 1,776 - - Commercial 508 497 - - Home equity lines of credit 369 296 - - Total $ 8,191 $ 12,072 $ - $ - Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes nonaccrual acquired loans that are accounted for as purchased credit impaired loans totaling $1.8 million and $2.7 million as of December 31, 2017 and June 30, 2017, respectively. Such loans are excluded because the loans are in pools that are considered performing. The discounts arising from recording these loans at fair value upon acquisition were due in part to credit quality and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows. The following tables present the aging of the recorded investment in past due loans by class of loans as of December 31, 2017 and June 30, 2017 (in thousands): December 31, 2017 30-59 60-89 90 Days or Days Past Days Past More Past Total Past Due Due Due Due Current Total Originated: Residential $ - $ - $ 1,632 $ 1,632 $ 153,476 $ 155,108 Commercial - - 258 258 404,223 404,481 Construction - - 2,260 2,260 14,119 16,379 Commercial loans - - 275 275 30,412 30,687 Other loans secured - - 544 544 45,344 45,888 Home equity lines of credit - - 100 100 34,306 34,406 Consumer and installment loans 10 - - 10 12,661 12,671 Total originated 10 - 5,069 5,079 694,541 699,620 Acquired: Residential - - 1,778 1,778 56,830 58,608 Commercial - - 1,087 1,087 75,601 76,688 Commercial loans - - - - 589 589 Other loans secured - - - - 168 168 Home equity lines of credit 46 - 296 342 5,410 5,752 Consumer and installment loans - - - - 189 189 Total acquired 46 - 3,161 3,207 138,787 141,994 Total $ 56 $ - $ 8,230 $ 8,286 $ 833,328 $ 841,614 June 30, 2017 30-59 60-89 90 Days or Days Past Days Past More Past Total Past Due Due Due Due Current Total Originated: Residential $ 94 $ 275 $ 1,973 $ 2,342 $ 153,390 $ 155,732 Commercial - - - - 355,247 355,247 Construction - - 3,661 3,661 18,743 22,404 Commercial loans - - - - 31,613 31,613 Other loans secured - - 544 544 43,612 44,156 Home equity lines of credit - 199 103 302 35,246 35,548 Consumer and installment loans - - - - 13,435 13,435 Total originated 94 474 6,281 6,849 651,286 658,135 Acquired: Residential 237 463 1,472 2,172 59,874 62,046 Commercial - - 1,054 1,054 81,350 82,404 Commercial loans - - - - 1,684 1,684 Other loans secured - - - - 2,646 2,646 Home equity lines of credit - - 296 296 6,083 6,379 Consumer and installment loans - - - - 330 330 Total acquired 237 463 2,822 3,522 151,967 155,489 Total $ 331 $ 937 $ 9,103 $ 10,371 $ 803,253 $ 813,624 Troubled Debt Restructurings The terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. As of December 31, 2017 and June 30, 2017, the Company had 17 and 20 loans classified as troubled debt restructurings totaling $7.1 million and $9.9 million, respectively. The Company has allocated $211,000 and $145,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2017 and June 30, 2017, and has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. The Company did not modify any loans as troubled debt restructuring during the three or six months ended December 31, 2017 or 2016. The Company had two troubled debt restructurings with a total carrying amount of $1.1 million at December 31, 2017 for which there was a payment default in the six months ended December 31, 2017 that were modified in the twelve months prior to default, resulting in a $66,000 increase to the allowance for loan loss. One default, with a carrying amount of $0.8 million, has been cured as of December 31, 2017. There were no such defaults during the three months ended December 31, 2017 or the three or six months ended December 31, 2016. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company utilized the same grading process for acquired loans as it does for originated loans. The Company uses the following definitions for risk ratings: Special Mention – Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date. Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as 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 and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above-described process and loans in groups of homogenous loans are considered to be pass rated loans. These loans are monitored based on delinquency and performance. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands): December 31, 2017 Pass Special Mention Substandard Doubtful Total Originated: Residential $ 152,995 $ 271 $ 1,842 $ - $ 155,108 Commercial 401,371 - 3,110 - 404,481 Construction 14,119 - 2,260 - 16,379 Commercial loans 28,024 - 2,663 - 30,687 Other loans secured 40,657 - 5,231 - 45,888 Home equity lines of credit 34,306 55 45 - 34,406 Consumer and installment loans 12,661 10 - - 12,671 Total originated 684,133 336 15,151 - 699,620 Acquired: Residential 57,864 109 635 - 58,608 Commercial 74,687 - 2,001 - 76,688 Commercial loans 589 - - - 589 Other loans secured 168 - - - 168 Home equity lines of credit 5,286 - 466 - 5,752 Consumer and installment loans 189 - - - 189 Total acquired 138,783 109 3,102 - 141,994 Total $ 822,916 $ 445 $ 18,253 $ - $ 841,614 June 30, 2017 Pass Special Mention Substandard Doubtful Total Originated: Residential $ 153,165 $ - $ 2,567 $ - $ 155,732 Commercial 352,203 134 2,910 - 355,247 Construction 18,743 - 3,661 - 22,404 Commercial loans 28,944 - 2,669 - 31,613 Other loans secured 37,267 - 6,889 - 44,156 Home equity lines of credit 35,246 58 244 - 35,548 Consumer and installment loans 13,405 - 30 - 13,435 Total originated 638,973 192 18,970 - 658,135 Acquired: Residential 58,665 - 3,381 - 62,046 Commercial 80,082 - 2,322 - 82,404 Commercial loans 1,684 - - - 1,684 Other loans secured 2,646 - - - 2,646 Home equity lines of credit 5,906 - 473 - 6,379 Consumer and installment loans 330 - - - 330 Total acquired 149,313 - 6,176 - 155,489 Total $ 788,286 $ 192 $ 25,146 $ - $ 813,624 Purchased Credit Impaired Loans The Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of December 31, 2017 and June 30, 2017 is as follows (in thousands): December 31, June 30, 2017 2017 Residential $ 1,252 $ 1,298 Commercial 1,493 1,824 Home equity lines of credit 173 177 Consumer and installment loans 20 42 Carrying amount, net of allowance of $65 and $26, respectively $ 2,938 $ 3,341 The allowance for loan loss on purchased credit impaired loans increased $39,000 during the three and six months ended December 31, 2017. Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands): Three Months Ended December 31, Six Months Ended December 31, 2017 2016 2017 2016 Beginning balance $ 375 $ 532 $ 403 $ 578 New loans acquired - - - - Accretion income (24 ) (46 ) (52 ) (92 ) Reclassification from non-accretable difference - - - - Disposals (113 ) - (113 ) - Ending balance $ 238 $ 486 $ 238 $ 486 |