Loans Receivable | Note 4. Loans Receivable Loans receivable are summarized as follows (in thousands): March 31, June 30, 2019 2018 Mortgage loans: Residential $ 261,970 $ 250,578 Commercial 499,284 495,265 Construction 16,302 17,352 Net deferred loan origination costs 843 1,041 Total mortgage loans 778,399 764,236 Commercial and consumer loans: Commercial loans 126,514 104,135 Home equity lines of credit 34,525 37,395 Consumer and overdrafts 459 745 Net deferred loan origination costs 728 729 Total commercial and consumer loans 162,226 143,004 Total loans receivable 940,625 907,240 Allowance for loan losses (4,945 ) (4,904 ) Loans receivable, net $ 935,680 $ 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 nine months ended March 31, 2019 and 2018 (in thousands): Three Months Ended March 31, 2019 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 379 $ 8 $ - $ 2 $ 389 Commercial 3,261 (26 ) - - 3,235 Construction 258 (58 ) - - 200 Commercial loans 880 69 - 2 951 Home equity lines of credit 82 (8 ) - - 74 Consumer and overdrafts 10 6 (11 ) 2 7 Acquired: Residential 73 16 - - 89 Total $ 4,943 $ 7 $ (11 ) $ 6 $ 4,945 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 844 (186 ) (23 ) 210 845 Home equity lines of credit 74 35 (60 ) 19 68 Consumer and overdrafts - 4 - - 4 Acquired: Residential 65 - - - 65 Total $ 4,471 $ 54 $ (130 ) $ 229 $ 4,624 Nine Months Ended March 31, 2019 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 386 $ (4 ) $ - $ 7 $ 389 Commercial 3,073 276 (114 ) - 3,235 Construction 505 (401 ) - 96 200 Commercial loans 780 169 - 2 951 Home equity lines of credit 80 (6 ) - - 74 Consumer and installment loans 7 21 (27 ) 6 7 Acquired: Residential 73 16 - - 89 Total $ 4,904 $ 71 $ (141 ) $ 111 $ 4,945 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 949 (291 ) (23 ) 210 845 Home equity lines of credit 76 33 (60 ) 19 68 Consumer and installment loans - 4 - - 4 Acquired: Residential 26 39 - - 65 Total $ 5,150 $ 389 $ (1,144 ) $ 229 $ 4,624 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, 2019 and June 30, 2018 (in thousands): March 31, 2019 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 $ 1,785 $ 258,905 $ 1,280 $ 261,970 $ 132 $ 257 $ 89 $ 478 Commercial 1,403 496,410 1,471 499,284 - 3,235 - 3,235 Construction - 16,302 - 16,302 - 200 - 200 Commercial loans 1,883 124,631 - 126,514 2 949 - 951 Home equity lines of credit 699 33,667 159 34,525 7 67 - 74 Consumer and overdrafts - 459 - 459 - 7 - 7 Total $ 5,770 $ 930,374 $ 2,910 $ 939,054 $ 141 $ 4,715 $ 89 $ 4,945 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 March 31, 2019 and June 30, 2018 (in thousands): March 31, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 1,064 $ 1,037 $ - Commercial 1,481 1,403 - Commercial loans 5,146 1,853 - Home equity lines of credit 679 613 - With a related allowance recorded: Residential 726 748 132 Commercial loans 30 30 2 Home equity lines of credit 89 86 7 Total $ 9,215 $ 5,770 $ 141 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 tables below present 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, 2019 and 2018 (in thousands): Three months ended Three months ended March 31, 2019 March 31, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 1,317 $ 9 $ 2,776 $ 13 Commercial 1,408 11 2,440 37 Commercial loans 1,862 42 3,027 68 Home equity lines of credit 616 - 452 - With a related allowance recorded: Residential 750 4 452 4 Construction - - 2,260 - Commercial loans 39 - 1,417 14 Home equity lines of credit 87 - 11 - Total $ 6,079 $ 66 $ 12,835 $ 136 Nine Months Ended Nine Months Ended March 31, 2019 March 31, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 1,516 $ 20 $ 3,360 $ 179 Commercial 1,494 37 2,447 91 Construction 2,131 138 121 17 Commercial loans 628 9 3,704 228 Home equity lines of credit - - 549 20 With a related allowance recorded: Residential 752 11 454 11 Construction 1,130 - 2,858 - Commercial loans 40 1 1,439 45 Home equity lines of credit 88 - 11 - Total $ 7,779 $ 216 $ 14,943 $ 591 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, 2019 and June 30, 2018 (in thousands): Loans Past Due Over 90 Days Nonaccrual and Still Accruing March 31, June 30, March 31, June 30, 2019 2018 2019 2018 Originated: Residential $ 541 $ 604 $ - $ - Commercial - 262 - - Construction - 2,260 - - Commercial loans 273 788 - - Home equity lines of credit 391 45 - - Acquired: Residential 802 1,308 - - Commercial 543 532 - - Home equity lines of credit 296 303 - - Total $ 2,846 $ 6,102 $ - $ - 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 March 31, 2019 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 March 31, 2019 and June 30, 2018 (in thousands): March 31, 2019 30-59 60-89 90 Days or Days Past Days Past More Past Total Past Due Due Due Due Current Total Originated: Residential $ - $ - $ 461 $ 461 $ 212,028 $ 212,489 Commercial - - - - 440,114 440,114 Construction - - - - 16,302 16,302 Commercial loans 158 - - 158 126,169 126,327 Home equity lines of credit - - 316 316 29,581 29,897 Consumer and overdrafts - 1 - 1 443 444 Total originated 158 1 777 936 824,637 825,573 Acquired: Residential - - 1,010 1,010 48,471 49,481 Commercial - - 1,122 1,122 58,048 59,170 Commercial loans - - - - 187 187 Home equity lines of credit - 69 296 365 4,263 4,628 Consumer and overdrafts - - - - 15 15 Total acquired - 69 2,428 2,497 110,984 113,481 Total $ 158 $ 70 $ 3,205 $ 3,433 $ 935,621 $ 939,054 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 both March 31, 2019 and June 30, 2018, the Company had 12 loans classified as troubled debt restructurings totaling $3.5 million and $3.8 million, respectively. The Company has allocated $129,000 and $139,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2019 and June 30, 2018. The Company 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 nine months ended March 31, 2019. The Company did not modify any loans as troubled debt restructuring during the three months ended March 31, 2019 or during the three or nine months ended March 31, 2018. The Company had no troubled debt restructurings for which there was a payment default in the three or nine months ended March 31, 2019 that were modified in the twelve months prior to default. There were no such defaults during the three months ended March 31, 2018. There were two troubled debt restructuring 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 and resulted in a $2,000 increase to the allowance for loan losses. One default with a carrying amount of $807,000, was cured as of March 31, 2018. 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, 2019 Pass Special Mention Substandard Doubtful Total Originated: Residential $ 210,771 $ 1,143 $ 575 $ - $ 212,489 Commercial 439,642 342 130 - 440,114 Construction 16,302 - - - 16,302 Commercial loans 116,129 6,607 3,591 - 126,327 Home equity lines of credit 29,438 92 367 - 29,897 Consumer and overdrafts 444 - - - 444 Total originated 812,726 8,184 4,663 - 825,573 Acquired: Residential 47,312 214 1,955 - 49,481 Commercial 56,330 825 2,015 - 59,170 Commercial loans 184 3 - - 187 Home equity lines of credit 3,768 474 386 - 4,628 Consumer and overdrafts 15 - - - 15 Total acquired 107,609 1,516 4,356 - 113,481 Total $ 920,335 $ 9,700 $ 9,019 $ - $ 939,054 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 March 31, 2019 and June 30, 2018 is as follows (in thousands): March 31, June 30, 2019 2018 Residential $ 1,191 $ 1,232 Commercial 1,471 1,477 Home equity lines of credit 159 168 Carrying amount, net of allowance of $89 and $73, respectively $ 2,821 $ 2,877 The allowance for loan losses on purchased credit impaired loans increased $16,000 during the three and nine months ended March 31, 2019. 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, 2019 2018 2019 2018 Beginning balance $ 219 $ 238 $ 245 $ 403 New loans acquired - - - - Accretion income (14 ) (7 ) (40 ) (59 ) Reclassification from non-accretable difference - - - - Disposals - - - (113 ) Ending balance $ 205 $ 231 $ 205 $ 231 |