Loans Receivable | Note 4 . Loans Receivable Loans receivable are summarized as follows (in thousands): June 30, 2019 2018 Mortgage loans: Residential $ 265,167 $ 250,578 Commercial 651,396 495,265 Construction 13,231 17,352 Net deferred loan origination costs 1,031 1,041 Total mortgages 930,825 764,236 Commercial and consumer loans: Commercial loans 133,614 104,135 Home equity lines of credit 33,204 37,395 Consumer and overdrafts 365 745 Net deferred loan origination costs 777 729 Total commercial and consumer loans 167,960 143,004 Total loans receivable 1,098,785 907,240 Allowance for loan losses (5,664 ) (4,904 ) Loans receivable, net $ 1,093,121 $ 902,336 In 2015, the Bank 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 years ended June 30, 2019 and 2018 (in thousands): For the year ended June 30, 2019 Beginning Allowance Provision (Credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 386 $ (33 ) $ - $ 10 $ 363 Commercial 3,073 894 (114 ) - 3,853 Construction 505 (442 ) - 96 159 Commercial loans 780 348 - 2 1,130 Home equity lines of credit 80 (15 ) - - 65 Consumer and overdrafts 7 31 (34 ) 7 11 Acquired: Residential 73 10 - - 83 Commercial - 15 (15 ) - - Total $ 4,904 $ 808 $ (163 ) $ 115 $ 5,664 For the year ended June 30, 2018 Beginning Allowance Provision (Credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 360 $ 161 $ (136 ) $ 1 $ 386 Commercial 2,589 114 - 370 3,073 Construction 1,150 352 (997 ) - 505 Commercial loans 949 (335 ) (54 ) 220 780 Home equity lines of credit 76 45 (60 ) 19 80 Consumer and overdrafts - 30 (23 ) - 7 Acquired: Residential 26 47 - - 73 Total $ 5,150 $ 414 $ (1,270 ) $ 610 $ 4,904 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 June 30, 2019 and 2018 (in thousands): June 30, 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 $ 1,774 $ 262,124 $ 1,269 $ 265,167 $ 130 $ 233 $ 83 $ 446 Commercial 1,418 649,088 890 651,396 - 3,853 - 3,853 Construction - 13,231 - 13,231 - 159 - 159 Commercial loans 2,016 131,598 - 133,614 39 1,091 - 1,130 Home equity lines of credit 689 32,359 156 33,204 4 61 - 65 Consumer and overdrafts - 365 - 365 - 11 - 11 Total $ 5,897 $ 1,088,765 $ 2,315 $ 1,096,977 $ 173 $ 5,408 $ 83 $ 5,664 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 and for the years ended June 30, 2019 and 2018 (in thousands): June 30, 2019 Unpaid Principal Balance Recorded Investment Allowance for loan losses With no related allowance recorded: Residential $ 1,061 $ 1,028 $ - Commercial 1,471 1,418 - Commercial loans 2,007 1,836 - Home equity lines of credit 750 678 - With an allowance recorded: Residential 723 746 130 Commercial loans 180 180 39 Home equity lines of credit 11 11 4 Total $ 6,203 $ 5,897 $ 173 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 an 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 For the year ended For the year ended June 30, 2019 June 30, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 1,377 $ 20 $ 3,041 $ 184 Commercial 1,496 51 2,350 248 Construction - - 93 17 Commercial loans 2,064 200 3,457 1,049 Home equity lines of credit 577 7 507 22 With an allowance recorded: Residential 753 14 453 15 Construction 869 - 2,720 - Commercial loans 50 11 1,491 66 Home equity lines of credit 11 - 11 - Total $ 7,197 $ 303 $ 14,123 $ 1,601 The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days still on accrual status, by class of loans as of June 30, 2019 and 2018 (in thousands): Loans Past Due Over 90 Days Nonaccrual and Still Accruing June 30, June 30, June 30, June 30, 2019 2018 2019 2018 Originated: Residential $ 536 $ 604 $ - $ - Commercial - 262 - - Construction - 2,260 - - Commercial loans 150 788 - - Home equity lines of credit 383 45 - - Consumer and overdrafts - - 1 - Acquired: Residential 795 1,308 - - Commercial 568 532 - - Home equity lines of credit 294 303 - - Total $ 2,726 $ 6,102 $ 1 $ - 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 that are accounted for as purchased credit impaired loans totaling $501,000 and $1.8 million as of June 30, 2019 and 2018, 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 June 30, 2019 and 2018 (in thousands): June 30, 2019 30-59 60-89 90 Days or Days Past Days Past More Past Total Past Due Due Due Due Current Total Originated: Residential $ - $ - $ 86 $ 86 $ 217,970 $ 218,056 Commercial - - - - 600,675 600,675 Construction - - - - 13,231 13,231 Commercial loans - 150 - 150 133,286 133,436 Home equity lines of credit 344 - 312 656 28,767 29,423 Consumer and overdrafts - - 1 1 348 349 Total originated 344 150 399 893 994,277 995,170 Acquired: Residential 220 116 709 1,045 46,066 47,111 Commercial - - 568 568 50,153 50,721 Commercial loans - - - - 178 178 Home equity lines of credit - 67 296 363 3,418 3,781 Consumer and overdrafts - - - - 16 16 Total acquired 220 183 1,573 1,976 99,831 101,807 Total $ 564 $ 333 $ 1,972 $ 2,869 $ 1,094,108 $ 1,096,977 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 June 30, 2019 and 2018, the Company had 14 and 12 loans classified as troubled debt restructurings totaling $4.1 million and $3.8 million, respectively, including $3.2 million and $3.0 million, respectively, of loans still accruing. The Company has allocated $135,000 and $139,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2019 and 2018, and has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. The following table presents loans by modified in troubled debt restructurings that occurred during the years ended June 30, 2019 and 2018 (dollars in thousands): Number of loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Year Ended June 30, 2019 Residential mortgage 3 $ 1,115 $ 1,110 Home equity lines of credit 1 73 73 Total 4 $ 1,188 $ 1,183 Year Ended June 30, 2018 Commercial loans 1 $ 275 $ 289 Total 1 $ 275 $ 289 The Company had no troubled debt restructurings for which there was a payment default in the year ended June 30, 2019 that were modified in the twelve months prior to default. There were two troubled debt restructurings, both commercial loans, for which there was a payment default in the year ended June 30, 2018 that were modified in the twelve months prior to default, which resulted in a $2,000 increase in the allowance for loan loss. 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): June 30, 2019 Pass Special Mention Substandard Total Originated: Residential $ 216,438 $ 1,071 $ 547 $ 218,056 Commercial 600,216 339 120 600,675 Construction 13,231 - - 13,231 Commercial loans 123,361 6,423 3,652 133,436 Home equity lines of credit 28,996 67 360 29,423 Consumer and overdrafts 349 - - 349 Total originated 982,591 7,900 4,679 995,170 Acquired: Residential 44,959 211 1,941 47,111 Commercial 45,726 3,537 1,458 50,721 Commercial loans 178 - - 178 Home equity lines of credit 3,331 68 382 3,781 Consumer and overdrafts 16 - - 16 Total acquired 94,210 3,816 3,781 101,807 Total $ 1,076,801 $ 11,716 $ 8,460 $ 1,096,977 June 30, 2018 Pass Special Mention Substandard 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 follows (in thousands): June 30, 2019 2018 Residential $ 1,186 $ 1,232 Commercial 890 1,477 Home equity lines of credit 156 168 Carrying amount, net of allowance of $83 and $73, respectively $ 2,232 $ 2,877 Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands): Year ended June 30, 2019 2018 Beginning balance $ 245 $ 403 New loans acquired - - Accretion income (53 ) (70 ) Reclassification from non-accretable difference - 5 Disposals - (93 ) Ending balance $ 192 $ 245 |