Loans Receivable | Note 5. Loans Receivable Loans receivable are summarized as follows (in thousands): March 31, June 30, 2018 2017 Mortgage loans: Residential $ 253,847 $ 217,778 Commercial 484,810 437,651 Construction 16,098 22,404 Net deferred loan origination costs 1,203 397 Total mortgages 755,958 678,230 Commercial and consumer loans: Commercial loans 35,897 33,297 Other loans secured 47,770 46,802 Home equity lines of credit 38,220 41,927 Consumer and installment loans 12,773 13,765 Net deferred loan origination costs 724 777 Total commercial and consumer loans 135,384 136,568 Total loans receivable 891,342 814,798 Allowance for loan losses (4,624 ) (5,150 ) Loans receivable, net $ 886,718 $ 809,648 In April 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. During the nine months ended March 31, 2018, the Company purchased whole loans and loan participations totaling $88.6 million, including $46.4 million of commercial mortgage loans and $42.2 million of residential mortgage loans. The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine months ended March 31, 2018 and 2017 (in thousands): Three Months Ended March 31, 2018 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 402 $ (20 ) $ (47 ) $ - $ 335 Commercial 2,686 131 - - 2,817 Construction 400 90 - - 490 Commercial loans 322 2 - - 324 Other loans secured 389 (180 ) (13 ) 210 406 Home equity lines of credit 74 35 (60 ) 19 68 Consumer and installment loans 133 (4 ) (10 ) - 119 Acquired: Residential 65 - - - 65 Total $ 4,471 $ 54 $ (130 ) $ 229 $ 4,624 Three Months Ended March 31, 2017 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 238 $ 158 $ (15 ) $ - $ 381 Commercial 3,031 (621 ) - - 2,410 Construction 336 552 - - 888 Commercial loans 501 48 - - 549 Other loans secured 339 31 - - 370 Home equity lines of credit 70 3 - - 73 Consumer and installment loans 113 61 (19 ) 4 159 Acquired: Commercial loans - 3 (3 ) - - Total $ 4,628 $ 235 $ (37 ) $ 4 $ 4,830 Nine Months Ended March 31, 2018 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 360 $ 39 $ (64 ) $ - $ 335 Commercial 2,589 228 - - 2,817 Construction 1,150 337 (997 ) - 490 Commercial loans 440 (116 ) - - 324 Other loans secured 365 (156 ) (13 ) 210 406 Home equity lines of credit 76 33 (60 ) 19 68 Consumer and installment loans 144 (15 ) (10 ) - 119 Acquired: Residential 26 39 - - 65 Total $ 5,150 $ 389 $ (1,144 ) $ 229 $ 4,624 Nine Months Ended March 31, 2017 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 237 $ 89 $ (15 ) $ 70 $ 381 Commercial 2,149 242 - 19 2,410 Construction 269 619 - - 888 Commercial loans 604 (628 ) - 573 549 Other loans secured 397 199 (324 ) 98 370 Home equity lines of credit 73 - - - 73 Consumer and installment loans 313 259 (417 ) 4 159 Acquired: - Residential - 38 (38 ) - - Commercial loans - 2 (2 ) Consumer and installment loans - 3 (3 ) - - Total $ 4,042 $ 823 $ (799 ) $ 764 $ 4,830 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 March 31, 2018 and June 30, 2017 (in thousands): March 31, 2018 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 $ 2,879 $ 249,655 $ 1,313 $ 253,847 $ 127 $ 208 $ 65 $ 400 Commercial 2,440 480,887 1,483 484,810 - 2,817 - 2,817 Construction 2,260 13,838 - 16,098 276 214 - 490 Commercial loans 349 35,548 - 35,897 8 316 - 324 Other loans secured 3,973 43,797 - 47,770 1 405 - 406 Home equity lines of credit 416 37,633 171 38,220 5 63 - 68 Consumer and installment loans - 12,773 - 12,773 - 119 - 119 Total $ 12,317 $ 874,131 $ 2,967 $ 889,415 $ 417 $ 4,142 $ 65 $ 4,624 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 March 31, 2018 and June 30, 2017 (in thousands): March 31, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 2,698 $ 2,428 $ - Commercial 2,946 2,440 - Other loans secured 7,163 2,916 - Home equity lines of credit 471 405 - With a related allowance recorded: Residential 390 451 127 Construction 3,257 2,260 276 Commercial loans 349 349 8 Other loans secured 1,057 1,057 1 Home equity lines of credit 11 11 5 Total $ 18,342 $ 12,317 $ 417 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 nine months ended March 31, 2018 and 2017 (in thousands): Three months ended Three months ended March 31, 2018 March 31, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 2,776 $ 13 $ 3,048 $ - Commercial 2,440 37 2,287 32 Commercial loans - - 89 1 Other loans secured 3,027 68 4,804 53 Home equity lines of credit 452 - 599 - With a related allowance recorded: Residential 452 4 517 4 Construction 2,260 - 3,388 - Commercial loans 350 1 - - Other loans secured 1,067 13 1,129 14 Home equity lines of credit 11 - 11 - Total $ 12,835 $ 136 $ 15,872 $ 104 Nine Months Ended Nine Months Ended March 31, 2018 March 31, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 3,360 $ 179 $ 3,078 $ - Commercial 2,447 91 2,303 95 Construction 121 17 - - Commercial loans - - 91 3 Other loans secured 3,704 228 4,846 172 Home equity lines of credit 549 20 599 (2 ) With a related allowance recorded: Residential 454 11 513 14 Construction 2,858 - 3,073 71 Commercial loans 353 5 - - Other loans secured 1,086 40 1,141 43 Home equity lines of credit 11 - 11 - Total $ 14,943 $ 591 $ 15,655 $ 396 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 March 31, 2018 and June 30, 2017 (in thousands): Loans Past Due Over 90 Days Nonaccrual and Still Accruing March 31, June 30, March 31, June 30, 2018 2017 2018 2017 Originated: Residential $ 1,129 $ 2,581 $ - $ - Commercial 262 - - - Construction 2,260 3,661 - - Commercial loans 275 - - - Other loans secured 1,307 2,959 - - Home equity lines of credit 100 302 - - Acquired: Residential 1,299 1,776 - - Commercial 508 497 - - Home equity lines of credit 304 296 - - Total $ 7,444 $ 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 March 31, 2018 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 March 31, 2018 and June 30, 2017 (in thousands): March 31, 2018 30-59 60-89 90 Days or Days Past Days Past More Past Total Past Due Due Due Due Current Total Originated: Residential $ - $ - $ 736 $ 736 $ 195,610 $ 196,346 Commercial 775 - 262 1,037 407,747 408,784 Construction - - 2,260 2,260 13,838 16,098 Commercial loans - - 275 275 35,033 35,308 Other loans secured - - 500 500 47,140 47,640 Home equity lines of credit - - 100 100 32,646 32,746 Consumer and installment loans - - - - 12,624 12,624 Total originated 775 - 4,133 4,908 744,638 749,546 Acquired: Residential 233 - 1,797 2,030 55,471 57,501 Commercial - - 1,087 1,087 74,939 76,026 Commercial loans - - - - 589 589 Other loans secured - - - - 130 130 Home equity lines of credit 23 - 296 319 5,155 5,474 Consumer and installment loans - - - - 149 149 Total acquired 256 - 3,180 3,436 136,433 139,869 Total $ 1,031 $ - $ 7,313 $ 8,344 $ 881,071 $ 889,415 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 March 31, 2018 and June 30, 2017, the Company had 16 and 20 loans classified as troubled debt restructurings totaling $7.0 million and $9.9 million, respectively. The Company has allocated $141,000 and $145,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2018 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 nine months ended March 31, 2018. The Company modified one loan as a troubled debt restructuring in the three and nine months ended March 31, 2017. The Company had two troubled debt restructurings with a total carrying amount of $1.1 million at March 31, 2018 for which there was a payment default in the nine months ended March 31, 2018 that were modified in the twelve months prior to default, resulting in a $2,000 increase to the allowance for loan loss. One default, with a carrying amount of $807,000, has been cured as of March 31, 2018. There were no such defaults during the three months ended March 31, 2018. There were two troubled debt restructurings with a total carrying amount of $929,000 for which there was a payment default in the three and nine months ended March 31, 2017. These defaults resulted in no increase to the allowance for loan losses. 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): March 31, 2018 Pass Special Mention Substandard Doubtful Total Originated: Residential $ 194,594 $ 548 $ 1,204 $ - $ 196,346 Commercial 405,696 - 3,088 - 408,784 Construction 13,838 - 2,260 - 16,098 Commercial loans 32,647 - 2,661 - 35,308 Other loans secured 42,606 - 5,034 - 47,640 Home equity lines of credit 32,599 102 45 - 32,746 Consumer and installment loans 12,624 - - - 12,624 Total originated 734,604 650 14,292 - 749,546 Acquired: Residential 54,367 253 2,881 - 57,501 Commercial 72,565 1,470 1,991 - 76,026 Commercial loans 589 - - - 589 Other loans secured 116 14 - - 130 Home equity lines of credit 5,074 - 400 - 5,474 Consumer and installment loans 149 - - - 149 Total acquired 132,860 1,737 5,272 - 139,869 Total $ 867,464 $ 2,387 $ 19,564 $ - $ 889,415 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 March 31, 2018 and June 30, 2017 is as follows (in thousands): March 31, June 30, 2018 2017 Residential $ 1,248 $ 1,298 Commercial 1,483 1,824 Home equity lines of credit 171 177 Consumer and installment loans - 42 Carrying amount, net of allowance of $65 and $26, respectively $ 2,902 $ 3,341 The allowance for loan losses on purchased credit impaired loans was unchanged during the three months ended March 31, 2018 and increased $39,000 during the nine months ended March 31, 2018. Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands): Three Months Ended March 31, Nine Months Ended March 31, 2018 2017 2018 2017 Beginning balance $ 238 $ 486 $ 403 $ 578 New loans acquired - - - - Accretion income (7 ) (47 ) (59 ) (139 ) Reclassification from non-accretable difference - - - - Disposals - - (113 ) - Ending balance $ 231 $ 439 $ 231 $ 439 |