Loans Receivable | Note 4. Loans Receivable Loans receivable are summarized as follows (in thousands): September 30, June 30, 2019 2019 Mortgage loans: Residential $ 264,251 $ 265,167 Commercial 726,315 651,396 Construction 18,830 13,231 Net deferred loan origination costs 1,202 1,031 Total mortgage loans 1,010,598 930,825 Commercial and consumer loans: Commercial loans 125,926 133,614 Home equity lines of credit 31,503 33,204 Consumer and overdrafts 437 365 Net deferred loan origination costs 783 777 Total commercial and consumer loans 158,649 167,960 Total loans receivable 1,169,247 1,098,785 Allowance for loan losses (5,993 ) (5,664 ) Loans receivable, net $ 1,163,254 $ 1,093,121 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 months ended September 30, 2019 and 2018 (in thousands): Three Months Ended September 30, 2019 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 363 $ (23 ) $ - $ 3 $ 343 Commercial 3,853 461 - - 4,314 Construction 159 63 - - 222 Commercial loans 1,130 (89 ) - - 1,041 Home equity lines of credit 65 (9 ) - 5 61 Consumer and overdrafts 11 15 (18 ) 4 12 Acquired: Residential 83 (83 ) - - - Total $ 5,664 $ 335 $ (18 ) $ 12 $ 5,993 Three Months Ended September 30, 2018 Beginning Allowance Provision (credit) Charge-offs Recoveries Ending Allowance Originated: Residential $ 386 $ (29 ) $ - $ 2 $ 359 Commercial 3,073 57 - - 3,130 Construction 505 (12 ) - - 493 Commercial loans 780 45 - - 825 Home equity lines of credit 80 (11 ) - - 69 Consumer and overdrafts 7 8 (7 ) 2 10 Acquired: Residential 73 - - - 73 Total $ 4,904 $ 58 $ (7 ) $ 4 $ 4,959 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 September 30, 2019 and June 30, 2019 (in thousands): September 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 $ 2,469 $ 261,025 $ 757 $ 264,251 $ 124 $ 219 $ - $ 343 Commercial 1,408 724,021 886 726,315 - 4,314 - 4,314 Construction - 18,830 - 18,830 - 222 - 222 Commercial loans 2,001 123,925 - 125,926 39 1,002 - 1,041 Home equity lines of credit 689 30,660 154 31,503 4 57 - 61 Consumer and overdrafts - 437 - 437 - 12 - 12 Total $ 6,567 $ 1,158,898 $ 1,797 $ 1,167,262 $ 167 $ 5,826 $ - $ 5,993 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 The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by portfolio segment as of September 30, 2019 and June 30, 2019 (in thousands): September 30, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses With no related allowance recorded: Residential $ 1,756 $ 1,732 $ - Commercial 1,461 1,408 - Commercial loans 5,071 1,821 - Home equity lines of credit 676 678 - With an allowance recorded: Residential 719 737 124 Commercial loans 180 180 39 Home equity lines of credit 11 11 4 Total $ 9,874 $ 6,567 $ 167 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 The tables below present the average recorded investment and interest income recognized on loans individually evaluated for impairment, by portfolio segment, for the three months ended September 30, 2019 and 2018 (in thousands): Three months ended Three months ended September 30, 2019 September 30, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Residential $ 1,735 $ 6 $ 1,845 $ 28 Commercial 1,411 12 1,621 39 Commercial loans 1,825 50 2,377 143 Home equity lines of credit 680 - 326 6 With an allowance recorded: Residential 738 3 450 11 Construction - - 2,260 - Commercial loans 180 1 64 2 Home equity lines of credit 11 - 11 - Total $ 6,580 $ 72 $ 8,954 $ 229 The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by portfolio segment, as of September 30, 2019 and June 30, 2019 (in thousands): Loans Past Due Over 90 Days Nonaccrual and Still Accruing September 30, June 30, September 30, June 30, 2019 2019 2019 2019 Originated: Residential $ 1,241 $ 536 $ - $ - Commercial loans 150 150 - - Home equity lines of credit 381 383 - - Consumer and overdrafts - - - 1 Acquired: Residential 789 795 - - Commercial 568 568 - - Home equity lines of credit 296 294 - - Total $ 3,425 $ 2,726 $ - $ 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 $418,000 and $501,000 as of September 30, 2019 and June 30, 2019, 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 portfolio segment as of September 30, 2019 and June 30, 2019 (in thousands): September 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 $ - $ 397 $ 796 $ 1,193 $ 218,646 $ 219,839 Commercial - - - - 678,403 678,403 Construction - - - - 18,830 18,830 Commercial loans - - 150 150 125,596 125,746 Home equity lines of credit - - 313 313 27,455 27,768 Consumer and overdrafts - - - - 422 422 Total originated - 397 1,259 1,656 1,069,352 1,071,008 Acquired: Residential - 217 213 430 43,982 44,412 Commercial - - 568 568 47,344 47,912 Commercial loans - - - - 180 180 Home equity lines of credit 21 - 363 384 3,351 3,735 Consumer and overdrafts - - - - 15 15 Total acquired 21 217 1,144 1,382 94,872 96,254 Total $ 21 $ 614 $ 2,403 $ 3,038 $ 1,164,224 $ 1,167,262 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 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 September 30, 2019 and June 30, 2019, the Company had 14 loans classified as troubled debt restructurings totaling $4.1 million, including $3.1 million and $3.2 million, respectively, of loans still accruing. The Company has allocated $129,000 and $135,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2019 and June 30, 2019. The Company 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 in troubled debt restructurings during the three months three months The Company had one troubled debt restructuring, a residential mortgage with a carrying amount of $370,000, default in the three months ended September 30, 2019 that was modified in the twelve months prior to default. This default resulted in no charge-off nor an increase to the allowance for loan losses. The Company had no troubled debt restructurings for which there was a payment default in the three months ended September 30, 2018, that were modified in the twelve months prior to default. 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 portfolio segment is as follows (in thousands): September 30, 2019 Pass Special Mention Substandard Total Originated: Residential $ 218,193 $ 396 $ 1,250 $ 219,839 Commercial 674,956 337 3,110 678,403 Construction 18,830 - - 18,830 Commercial loans 118,113 4,070 3,563 125,746 Home equity lines of credit 27,344 72 352 27,768 Consumer and overdrafts 422 - - 422 Total originated 1,057,858 4,875 8,275 1,071,008 Acquired: Residential 43,056 206 1,150 44,412 Commercial 42,962 3,496 1,454 47,912 Commercial loans 180 - - 180 Home equity lines of credit 3,285 67 383 3,735 Consumer and overdrafts 15 - - 15 Total acquired 89,498 3,769 2,987 96,254 Total $ 1,147,356 $ 8,644 $ 11,262 $ 1,167,262 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 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 September 30, 2019 and June 30, 2019 is as follows (in thousands): September 30, June 30, 2019 2019 Residential $ 757 $ 1,186 Commercial 886 890 Home equity lines of credit 154 156 Carrying amount, net of allowance of $0 and $83, respectively $ 1,797 $ 2,232 The allowance for loan losses on purchased credit impaired loans decreased $83,000 during the three months ended September 30, 2019. Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands): Three Months Ended September 30, 2019 2018 Beginning balance $ 192 $ 245 New loans acquired - - Accretion income (10 ) (13 ) Reclassification from non-accretable difference - - Disposals - - Ending balance $ 182 $ 232 |