Loans Receivable | Note 4. Loans Receivable Loans receivable are summarized as follows (in thousands): December 31, June 30, 2018 2018 Mortgage loans: Residential $ 248,575 $ 250,578 Commercial 499,930 495,265 Construction 16,023 17,352 Net deferred loan origination costs 842 1,041 Total mortgage loans 765,370 764,236 Commercial and consumer loans: Commercial loans 107,899 104,135 Home equity lines of credit 35,029 37,395 Consumer and overdrafts 321 745 Net deferred loan origination costs 701 729 Total commercial and consumer loans 143,950 143,004 Total loans receivable 909,320 907,240 Allowance for loan losses (4,943 ) (4,904 ) Loans receivable, net $ 904,377 $ 902,336 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, 2018 and 2017 (in thousands): Three Months Ended December 31, 2018 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 359 $ 17 $ - $ 3 $ 379 Commercial 3,130 245 (114 ) - 3,261 Construction 493 (331 ) - 96 258 Commercial loans 825 55 - - 880 Home equity lines of credit 69 13 - - 82 Consumer and overdrafts 10 7 (9 ) 2 10 Acquired: Residential 73 - - - 73 Total $ 4,959 $ 6 $ (123 ) $ 101 $ 4,943 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 889 (45 ) - - 844 Home equity lines of credit 77 (3 ) - - 74 Consumer and overdrafts - - - - - Acquired: Residential 26 39 - - 65 Total $ 5,268 $ 200 $ (997 ) $ - $ 4,471 Six Months Ended December 31, 2018 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 386 $ (12 ) $ - $ 5 $ 379 Commercial 3,073 302 (114 ) - 3,261 Construction 505 (343 ) - 96 258 Commercial loans 780 100 - - 880 Home equity lines of credit 80 2 - - 82 Consumer and installment loans 7 15 (16 ) 4 10 Acquired: Residential 73 - - - 73 Total $ 4,904 $ 64 $ (130 ) $ 105 $ 4,943 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 949 (105 ) - - 844 Home equity lines of credit 76 (2 ) - - 74 Consumer and installment loans - - - - - Acquired: Residential 26 39 - - 65 Total $ 5,150 $ 335 $ (1,014 ) $ - $ 4,471 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, 2018 and June 30, 2018 (in thousands): December 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 $ 2,367 $ 244,925 $ 1,283 $ 248,575 $ 123 $ 256 $ 73 $ 452 Commercial 1,413 497,044 1,473 499,930 - 3,261 - 3,261 Construction - 16,023 - 16,023 - 258 - 258 Commercial loans 1,913 105,986 - 107,899 2 878 - 880 Home equity lines of credit 685 34,182 162 35,029 13 69 - 82 Consumer and overdrafts - 321 - 321 - 10 - 10 Total $ 6,378 $ 898,481 $ 2,918 $ 907,777 $ 138 $ 4,732 $ 73 $ 4,943 June 30, 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 $ 2,360 $ 246,913 $ 1,305 $ 250,578 $ 154 $ 232 $ 73 $ 459 Commercial 1,683 492,105 1,477 495,265 - 3,073 - 3,073 Construction 2,260 15,092 - 17,352 276 229 - 505 Commercial loans 2,451 101,684 - 104,135 9 771 - 780 Home equity lines of credit 360 36,867 168 37,395 12 68 - 80 Consumer and overdrafts - 745 - 745 - 7 - 7 Total $ 9,114 $ 893,406 $ 2,950 $ 905,470 $ 451 $ 4,380 $ 73 $ 4,904 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, 2018 and June 30, 2018 (in thousands): December 31, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 1,969 $ 1,923 $ - Commercial 1,490 1,413 - Commercial loans 5,164 1,851 - Home equity lines of credit 665 596 - With a related allowance recorded: Residential 384 444 123 Commercial loans 62 62 2 Home equity lines of credit 90 89 13 Total $ 9,824 $ 6,378 $ 138 June 30, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 1,659 $ 1,576 $ - Commercial 1,765 1,683 - Commercial loans 2,254 2,098 - Home equity lines of credit 341 341 - With a related allowance recorded: Residential 742 784 154 Construction 3,257 2,260 276 Commercial loans 353 353 9 Home equity lines of credit 84 19 12 Total $ 10,455 $ 9,114 $ 451 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, 2018 and 2017 (in thousands): Three months ended Three months ended December 31, 2018 December 31, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 1,927 $ 4 $ 3,027 $ 124 Commercial 1,417 13 2,454 27 Commercial loans 2,110 47 3,488 77 Home equity lines of credit 597 1 571 20 With a related allowance recorded: Residential 445 3 778 3 Construction 1,130 - 3,008 - Commercial loans 63 1 1,439 13 Home equity lines of credit 89 - 11 - Total $ 7,778 $ 69 $ 14,776 $ 264 Six Months Ended Six Months Ended December 31, 2018 December 31, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 1,968 $ 11 $ 3,431 $ 166 Commercial 1,532 26 2,447 54 Construction - - 173 17 Commercial loans 2,226 96 4,002 160 Home equity lines of credit 612 9 593 20 With a related allowance recorded: Residential 446 7 686 7 Construction 1,614 - 3,115 - Commercial loans 63 1 1,448 31 Home equity lines of credit 89 - 11 - Total $ 8,550 $ 150 $ 15,906 $ 455 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, 2018 and June 30, 2018 (in thousands): Loans Past Due Over 90 Days Nonaccrual and Still Accruing December 31, June 30, December 31, June 30, 2018 2018 2018 2018 Originated: Residential $ 635 $ 604 $ - $ - Commercial - 262 - - Construction - 2,260 - - Commercial loans 278 788 158 - Home equity lines of credit 374 45 - - Consumer and overdrafts - - - Acquired: Residential 1,288 1,308 - - Commercial 543 532 - - Home equity lines of credit 299 303 - - Total $ 3,417 $ 6,102 $ 158 $ - Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes acquired loans past due over 90 days that are accounted for as purchased credit impaired loans totaling $1.1 million as of both December 31, 2018 and June 30, 2018. 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, 2018 and June 30, 2018 (in thousands): December 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 $ 24 $ - $ 553 $ 577 $ 197,263 $ 197,840 Commercial - - - - 436,430 436,430 Construction - - - - 16,023 16,023 Commercial loans - - 159 159 107,546 107,705 Home equity lines of credit 18 297 - 315 30,424 30,739 Consumer and overdrafts - - - - 321 321 Total originated 42 297 712 1,051 788,007 789,058 Acquired: Residential 116 - 1,488 1,604 49,131 50,735 Commercial - - 1,122 1,122 62,378 63,500 Commercial loans - - - - 194 194 Home equity lines of credit 70 - 296 366 3,924 4,290 Total acquired 186 - 2,906 3,092 115,627 118,719 Total $ 228 $ 297 $ 3,618 $ 4,143 $ 903,634 $ 907,777 June 30, 2018 30-59 60-89 90 Days or Days Past Days Past More Past Total Past Due Due Due Due Current Total Originated: Residential $ - $ 394 $ 210 $ 604 $ 194,986 $ 195,590 Commercial - - 262 262 420,320 420,582 Construction - - 2,260 2,260 15,092 17,352 Commercial loans - - 500 500 102,767 103,267 Home equity lines of credit - - 45 45 32,311 32,356 Consumer and overdrafts - - - - 733 733 Total originated - 394 3,277 3,671 766,209 769,880 Acquired: Residential - 232 1,806 2,038 52,950 54,988 Commercial - - 1,112 1,112 73,571 74,683 Commercial loans - - - - 868 868 Home equity lines of credit 30 - 296 326 4,713 5,039 Consumer and overdrafts - - - - 12 12 Total acquired 30 232 3,214 3,476 132,114 135,590 Total $ 30 $ 626 $ 6,491 $ 7,147 $ 898,323 $ 905,470 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, 2018 and June 30, 2018, the Company had 13 and 12 loans classified as troubled debt restructurings totaling $4.0 million and $3.8 million, respectively. The Company has allocated $130,000 and $139,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2018 and June 30, 2018 and has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. The Company modified two loans with a total carrying amount of $428,000, one residential mortgage and one home equity line of credit, in troubled debt restructurings during the six months ended December 31, 2018. The Company did not modify any loans as troubled debt restructuring during the three months ended December 31, 2018 or during the three or six months ended December 31, 2017. The Company had no troubled debt restructurings for which there was a payment default in the three or six months ended December 31, 2018 that were modified in the twelve months prior to default. There were two troubled debt restructuring 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 and resulted in $66,000 increase to the allowance for loan losses. One default with a carrying amount of $823,000, has been cured as of December 31, 2017. There were no such defaults during the three months ended December 31, 2017. 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, 2018 Pass Special Mention Substandard Doubtful Total Originated: Residential $ 196,542 $ 553 $ 745 $ - $ 197,840 Commercial 436,290 - 140 - 436,430 Construction 16,023 - - - 16,023 Commercial loans 103,489 158 4,058 - 107,705 Home equity lines of credit 30,200 165 374 - 30,739 Consumer and overdrafts 321 - - - 321 Total originated 782,865 876 5,317 - 789,058 Acquired: Residential 47,934 358 2,443 - 50,735 Commercial 60,653 831 2,016 - 63,500 Commercial loans 188 6 - - 194 Home equity lines of credit 3,828 71 391 - 4,290 Total acquired 112,603 1,266 4,850 - 118,719 Total $ 895,468 $ 2,142 $ 10,167 $ - $ 907,777 June 30, 2018 Pass Special Mention Substandard Doubtful Total Originated: Residential $ 194,341 $ 571 $ 678 $ - $ 195,590 Commercial 418,370 - 2,212 - 420,582 Construction 15,092 - 2,260 - 17,352 Commercial loans 98,205 167 4,895 - 103,267 Home equity lines of credit 32,167 144 45 - 32,356 Consumer and overdrafts 733 - - 733 Total originated 758,908 882 10,090 - 769,880 Acquired: Residential 51,858 249 2,881 - 54,988 Commercial 71,832 842 2,009 - 74,683 Commercial loans 857 11 - - 868 Home equity lines of credit 4,641 - 398 - 5,039 Consumer and overdrafts 12 - - - 12 Total acquired 129,200 1,102 5,288 - 135,590 Total $ 888,108 $ 1,984 $ 15,378 $ - $ 905,470 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, 2018 and June 30, 2018 is as follows (in thousands): December 31, June 30, 2018 2018 Residential $ 1,210 $ 1,232 Commercial 1,473 1,477 Home equity lines of credit 162 168 Carrying amount, net of allowance of $73 and $73, respectively $ 2,845 $ 2,877 The allowance for loan losses on purchased credit impaired loans was unchanged during the three and six months ended December 31, 2018. 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, 2018 2017 2018 2017 Beginning balance $ 232 $ 532 $ 245 $ 578 New loans acquired - - - - Accretion income (13 ) (46 ) (26 ) (92 ) Reclassification from non-accretable difference - - - - Disposals - - - - Ending balance $ 219 $ 486 $ 219 $ 486 |