| NET LOANS RECEIVABLE | 7. NET LOANS RECEIVABLE The CompanyÂ’s primary business activity is with customers
located within its local market area of Northern Allegheny and Southern Butler counties within the state of Pennsylvania. The Company has concentrated its lending efforts by granting residential and construction mortgage loans to customers
throughout its immediate trade area. The Company also selectively funds and participates in commercial and residential mortgage loans outside of its immediate trade area, provided such loans meet the CompanyÂ’s credit policy guidelines. At June 30, 2016 and 2015, the Company had approximately $5.4 million and
$3.7 million, respectively, of outstanding loans for land development and construction in the local trade area. Although the Company had a diversified loan portfolio at June 30, 2016 and 2015, loans outstanding to individuals and businesses are
dependent upon the local economic conditions in its immediate trade area. Certain officers, directors, and their associates were customers
of, and had transactions with, the Company in the ordinary course of business. There were no loans for those directors, executive officers, and their associates with aggregate loan balances outstanding of at least $60 thousand during the fiscal
years ended June 30, 2016 and 2015. The following table summarizes the primary segments of the loan portfolio as of June 30, 2016 and June
30, 2015.
June 30, 2016 June 30, 2015
Total Loans Individually for Collectively Total Individually Collectively
(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings $ 49,411 $ — $ 49,411 $ 28,620 $ — $ 28,620
Construction 4,783 — 4,783 3,032 — 3,032
Land acquisition & development 666 — 666 653 — 653
Multi-family dwellings 3,961 — 3,961 6,084 — 6,084
Commercial 1,592 — 1,592 3,395 49 3,346
Consumer Loans
Home equity 802 — 802 1,175 — 1,175
Home equity lines of credit 1,900 — 1,900 1,917 — 1,917
Other 150 — 150 211 — 211
Commercial Loans 1,456 — 1,456 1,251 — 1,251
Obligations (other than securities and leases) of states and
political subdivisions — — — — — —
$ 64,721 $ — $ 64,721 $ 46,338 $ 49 $ 46,289
Less: Deferred loan costs 312 129
Allowance for loan losses (360 ) (304 )
Total $ 64,673 $ 46,163
Impaired loans are loans for which it is probable the Company will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The following loan categories are collectively evaluated for impairment. First mortgage loans: 1 – 4 family dwellings and all consumer loan categories (home equity, home
equity lines of credit, and other). The following loan categories are individually evaluated for impairment. First mortgage loans: construction, land acquisition and development, multi-family dwellings, and commercial. The
Company evaluates commercial loans not secured by real property individually for impairment. The following table is a summary of the loans considered to be impaired as of June 30, 2016
and June 30, 2015, and the related interest income recognized for the twelve months ended June 30, 2016 and June 30, 2015:
June 30, June 30,
(Dollars in Thousands)
Impaired loans with an allocated allowance:
Home equity lines of credit $ — $ —
Impaired loans without an allocated allowance:
Commercial real estate loans — 49
Home equity lines of credit — —
Total impaired loans $ — $ 49
Allocated allowance on impaired loans:
Commercial real estate loans $ — $ —
Home equity lines of credit — —
Total $ — $ —
Average impaired loans:
Construction loans $ — $ —
Land acquisition & development loans — —
Commercial real estate loans 12 49
Home equity lines of credit — 107
Total $ 12 $ 156
Income recognized on impaired loans:
Construction loans $ — $ —
Land acquisition & development loans — —
Commercial real estate loans 1 3
Home equity lines of credit — 5
Total $ 1 $ 8
Total nonaccrual loans as of June 30, 2016 and June 30, 2015 and the related interest income
recognized for the twelve months ended June 30, 2016 and June 30, 2015 are as follows:
June 30, June 30,
(Dollars in Thousands)
Principal outstanding:
1 – 4 family dwellings $ 254 $ 260
Construction — —
Land acquisition & development — —
Commercial real estate — 49
Home equity lines of credit — —
Total $ 254 $ 309
Average nonaccrual loans:
1 – 4 family dwellings $ 257 $ 289
Construction — —
Land acquisition & development — —
Commercial real estate 12 49
Home equity lines of credit — 107
Total $ 269 $ 445
Income that would have been recognized $ 17 $ 25
Interest income recognized $ 24 $ 32
Interest income foregone $ — $ 1 The Company’s loan portfolio also includes troubled debt restructurings (TDRs), where economic
concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the CompanyÂ’s loss mitigation activities and could include reductions in the
interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the
borrowerÂ’s sustained repayment performance for a reasonable period, generally six months. During fiscal 2016, there were no loans
modified and considered a trouble debt restructuring. At June 30, 2016, there were no previously modified TDRs in default. One previously modified TDR, secured by commercial real estate, was paid off in full during fiscal 2016. The following table includes the recorded investment and number of TDRs for the fiscal year ended June 30, 2015. The Company reports the
recorded investment in the loans prior to a restructuring and also the recorded investment in the loans after the loans were restructured.
June 30, 2015
Number Pre-Modification Post-Modification
(Dollars in Thousands)
Troubled debt restructurings:
Commercial real estate loans 1 $ 49 $ 49
Troubled debt restructurings that subsequently defaulted:
Commercial real estate loans — $ — $ — During fiscal 2015, one loan secured by commercial real estate was modified twice by reducing its required
payment for a nine month period, then again for an additional twenty-four month period. At June 30, 2015, there were no previously modified TDRs in default. When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows,
discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair
value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or
costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loanÂ’s
classification at origination. The allowance for loan losses is established through provisions for loan losses charged against
income. Loans deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance. The allowance is maintained at a level believed adequate by management to absorb
estimated potential loan losses. ManagementÂ’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio considering past experience, current economic conditions, composition of the loan portfolio
and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change. Effective December 13, 2006, the FDIC, in conjunction with the other federal banking agencies adopted a Revised Interagency Policy Statement on
the Allowance for Loan and Lease Losses (“ALLL”). The revised policy statement revised and replaced the banking agencies’ 1993 policy statement on the ALLL. The revised policy statement provides that an institution must
maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The
banking agencies also revised the policy to ensure consistency with generally accepted accounting
principles (“GAAP”). The revised policy statement updates the previous guidance that describes the responsibilities of the board of directors, management, and bank examiners regarding the ALLL, factors to be considered in the
estimation of the ALLL, and the objectives and elements of an effective loan review system. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are
three classifications for problem assets: “substandard”, “doubtful” and “loss”. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of 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 questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not
warranted. Another category designated “asset watch” is also utilized by the Bank for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or
loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be
included in determining an institutionÂ’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. The CompanyÂ’s general policy is to internally classify its assets on a regular basis and establish prudent general valuation allowances
that are adequate to absorb losses that have not been identified but that are inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are adequate to absorb losses in its loan portfolio that are not
clearly attributable to specific loans. The CompanyÂ’s general valuation allowances are within the following general ranges: (1) 0% to 5% of assets subject to special mention; (2) 5.00% to 100% of assets classified substandard; and (3) 50%
to 100% of assets classified doubtful. Any loan classified as loss is charged-off. To further monitor and assess the risk characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem
loans. Based upon the procedures in place, considering the CompanyÂ’s past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at June 30, 2016, is adequate.
The following tables present the classes of the loan portfolio summarized by the aging
categories of performing loans and nonaccrual loans as of June 30, 2016 and 2015:
Current 30 – 59 60 – 89 90 Days + 90 Days + Non-accrual Total Total
(Dollars in Thousands)
June 30, 2016
First mortgage loans:
1 – 4 family dwellings $ 49,157 $ — $ — $ — $ 254 $ 254 $ 49,411
Construction 4,783 — — — — — 4,783
Land acquisition & development 666 — — — — — 666
Multi-family dwellings 3,961 — — — — — 3,961
Commercial 1,592 — — — — — 1,592
Consumer Loans
Home equity 802 — — — — — 802
Home equity lines of credit 1,900 — — — — — 1,900
Other 150 — — — — — 150
Commercial Loans 1,456 — — — — — 1,456
Obligations (other than securities and leases) of states and political subdivisions — — — — — — —
$ 64,467 $ — $ — $ — $ 254 $ 254 64,721
Deferred loan costs 312
Allowance for loan losses (360 )
Net Loans Receivable $ 64,673
Current 30 – 59 60 – 89 90 Days + 90 Days + Total Total
(Dollars in Thousands)
June 30, 2015
First mortgage loans:
1 – 4 family dwellings $ 28,327 $ — $ 33 $ — $ 260 $ 293 $ 28,620
Construction 3,032 — — — — — 3,032
Land acquisition & development 653 — — — — — 653
Multi-family dwellings 6,084 — — — — — 6,084
Commercial 3,335 11 — — 49 60 3,395
Consumer Loans
Home equity 1,175 — — — — — 1,175
Home equity lines of credit 1,917 — — — — — 1,917
Other 211 — — — — — 211
Commercial Loans 1,251 — — — — — 1,251
Obligations (other than securities and leases) of states and political subdivisions — — — — — — —
$ 45,985 $ 11 $ 33 $ — $ 309 $ 353 46,338
Deferred loan costs 129
Allowance for loan losses (304 )
Net Loans Receivable $ 46,163
Credit Quality Information The following tables represent credit exposure by internally assigned grades for the fiscal years ended June 30, 2016 and 2015. The
grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The CompanyÂ’s internal credit risk grading system is based on experiences with
similarly graded loans. The Company’s internally assigned grades are as follows: Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. Substandard – loans that have a well-defined weakness based on objective evidence and can be characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected. Doubtful – loans classified as doubtful have all the
weaknesses inherent in a substandard loan. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. Loss – loans classified as loss are considered uncollectible, or of such value that continuance as a loan is not warranted. The primary credit quality indicator used by management in the 1 – 4 family and consumer loan portfolios is the performance status of the
loans. Payment activity is reviewed by Management on a monthly basis to determine how loans are performing. Loans are considered to be non-performing when they become 90 days delinquent, have a history of delinquency, or have other
inherent characteristics which Management deems to be weaknesses. The following tables presents the CompanyÂ’s internally classified
construction, land acquisition and development, multi-family residential, commercial real estate and commercial (not secured by real estate) loans at June 30, 2016 and 2015.
June 30, 2016
Construction Land Multi-family Commercial Estate Commercial Obligations and leases) and
Political
(Dollars in Thousands)
Pass $ 4,783 $ 666 $ 3,961 $ 1,592 $ 1,456 $ —
Special Mention — — — — — —
Substandard — — — — — —
Doubtful — — — — — —
Ending Balance $ 4,783 $ 666 $ 3,961 $ 1,592 $ 1,456 $ —
June 30, 2015
Construction Land Multi-family Commercial Estate Commercial Obligations and leases) and
Political
(Dollars in Thousands)
Pass $ 3,032 $ 445 $ 6,084 $ 3,346 $ 1,251 $ —
Special Mention — — — — — —
Substandard — 208 — 49 — —
Doubtful — — — — — —
Ending Balance $ 3,032 $ 653 $ 6,084 $ 3,395 $ 1,251 $ —
The following table presents performing and non-performing 1 – 4 family residential and consumer loans
based on payment activity for the periods ended June 30, 2016 and June 30, 2015.
June 30, 2016
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 49,157 $ 2,852
Non-performing 254 —
Total $ 49,411 $ 2,852
June 30, 2015
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 28,360 $ 3,303
Non-performing 260 —
Total $ 28,620 $ 3,303 |
