| LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES | 9. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES The following table
summarizes the primary segments of the loan portfolio as of December 31, 2016 and June 30, 2016.
December 31, 2016 June 30, 2016
Total Loans Individually evaluated Collectively Total Loans Individually evaluated Collectively
(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings $ 58,782 $ - $ 58,782 $ 49,411 $ - $ 49,411
Construction 5,042 - 5,042 4,783 - 4,783
Land acquisition & development 651 - 651 666 - 666
Multi-family dwellings 3,784 - 3,784 3,961 - 3,961
Commercial 1,666 - 1,666 1,592 - 1,592
Consumer Loans
Home equity 932 - 932 802 - 802
Home equity lines of credit 2,185 - 2,185 1,900 - 1,900
Other 161 - 161 150 - 150
Commercial Loans 942 - 942 1,456 - 1,456
Obligations (other than securities and leases) of states and political subdivisons - - - - - -
$ 74,145 $ - $ 74,145 $ 64,721 $ - $ 64,721
Plus: Deferred loan costs 396 312
Allowance for loan losses (395 ) (360 )
Total $ 74,146 $ 64,673
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 definition of “impaired loans” is not the same as the
definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the
loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the
difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired.
Management determines the significance of payment delays on a case-by-case The following tables are a summary of the loans considered to be impaired as of December 31, 2016 and June 30,
2016, and the related interest income recognized for the three and six months ended December 31, 2016 and December 31, 2015:
December 31, 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 - -
Total impaired loans $ - $ -
Allocated allowance on impaired loans:
Home equity lines of credit $ - $ -
Commercial real estate loans - -
Total $ - $ -
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
(Dollars in Thousands)
Average impaired loans
Construction loans $ - $ - $ - $ -
Land acquisition & development loans - - - -
Commercial real estate loans - - 24 24
Home equity lines of credit - - - -
Total $ - $ - $ 24 $ 24
Income recognized on impaired loans
Construction loans $ - $ - $ - $ -
Land acquisition & development loans - - - -
Commercial real estate loans - - 1 1
Home equity lines of credit - - - -
Total $ - $ - $ 1 $ 1
Total nonaccrual loans as of December 31, 2016 and June 30, 2016 and the related interest
income recognized for the three and six months ended December 31, 2016 and December 31, 2015 are as follows:
December 31, June 30,
(Dollars in Thousands)
Principal outstanding
1 – 4 family dwellings $ 250 $ 254
Construction - -
Land acquisition & development - -
Commercial real estate - -
Home equity lines of credit - -
Total $ 250 $ 254
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
(Dollars in Thousands)
Average nonaccrual loans
1 – 4 family dwellings $ 251 $ 258 $ 252 $ 259
Construction - - - -
Land acquisition & development - - - -
Commercial real estate - - - 24
Home equity lines of credit - - - -
Total $ 251 $ 258 $ 252 $ 283
Income that would have been recognized $ 5 $ 4 $ 8 $ 9
Interest income recognized $ 5 $ 5 $ 9 $ 11
Interest income foregone $ - $ - $ - $ - The CompanyÂ’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 the three and six months ended December 31, 2016,
and December 31, 2015, there were no TDRs, and no TDRs that subsequently defaulted. 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 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 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) 1.00% to 100% of assets classified substandard; and (3) 50% to 100% of assets classified doubtful. Any loan classified as loss is charged-off. The following tables present the classes of the loan portfolio summarized by the aging
categories of performing loans and nonaccrual loans as of December 31, 2016 and June 30, 2016:
Current 30 –59 Days Past Due 60 –89 90 Days + Accruing 90 Days + Non-accrual Total Total Loans
(Dollars in Thousands)
December 31, 2016
First mortgage loans:
1 – 4 family dwellings $ 58,532 $ - $ - $ - $ 250 $ 250 $ 58,782
Construction 5,042 - - - - - 5,042
Land acquisition & development 651 - - - - - 651
Multi-family dwellings 3,784 - - - - - 3,784
Commercial 1,666 - - - - - 1,666
Consumer Loans:
Home equity 932 - - - - - 932
Home equity lines of credit 2,185 - - - - - 2,185
Other 161 - - - - - 161
Commercial Loans 942 - - - - - 942
$ 73,895 $ - $ - $ - $ 250 $ 250 74,145
Plus: Deferred loan fees 396
Allowance for loan losses (395 )
Net Loans Receivable $ 74,146
Current 30 – 59 60 – 89 90 Days + Accruing 90 Days + Non-accrual Total Total Loans
(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
$ 64,467 $ - $ - $ - $ 254 $ 254 64,721
Plus: Deferred loan fees 312
Allowance for loan losses (360 )
Net Loans Receivable $ 64,673
Credit quality information The following tables represent credit exposure by internally assigned grades for the period ended December 31, 2016. 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 The following tables present 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 December 31, 2016 and June 30, 2016.
December 31, 2016
Construction Land Acquisition & Development Loans Multi-family Residential Commercial Real Estate Commercial
(Dollars in Thousands)
Pass $ 5,042 $ 651 $ 3,784 $ 1,666 $ 942
Special Mention - - - - -
Substandard - - - - -
Doubtful - - - - -
Ending Balance $ 5,042 $ 651 $ 3,784 $ 1,666 $ 942
June 30, 2016
Construction Land Acquisition & Development Loans Multi-family Residential Commercial Estate Commercial
(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
The following table presents performing and non-performing
December 31, 2016
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 58,532 $ 3,278
Non-performing 250 -
Total $ 58,782 $ 3,278
June 30, 2016
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 49,157 $ 2,852
Non-performing 254 -
Total $ 49,411 $ 2,852
The Company determines its allowance for loan losses in accordance with generally accepted accounting
principles. The Company uses a systematic methodology as required by Financial Reporting Release No. 28 and the various Federal Financial Institutions Examination Council guidelines. The Company also endeavors to adhere to SEC Staff Accounting
Bulletin No. 102 in connection with loan loss allowance methodology and documentation issues. Our methodology used to
determine the allocated portion of the allowance is as follows. For groups of homogenous loans, we apply a loss rate to the groupsÂ’ aggregate balance. Our group loss rate reflects our historical loss experience. We may adjust these group rates
to compensate for changes in environmental factors; but our adjustments have not been frequent due to a relatively stable charge-off
recoveries; and (3) presenting the results of this process, quarterly, to the Asset Classification Committee and the Savings BankÂ’s Board of Directors. We then tabulate, format and
summarize the current loan loss allowance balance for financial and regulatory reporting purposes. The Company had no unallocated
loss allowance balance at December 31, 2016. The allowance for loan losses represents the amount which management estimates is
adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for
loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on managementÂ’s periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the
composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly
susceptible to changes in the near term. The following tables summarize the primary segments of the allowance for loan losses
(“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2016 and 2015. Activity in the allowance is
presented for the three and six months ended December 31, 2016 and 2015.
As of December 31, 2016
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at September 30, 2016 $ 256 $ 46 $ 7 $ 21 $ 17 $ 24 $ 5 $ 376
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions 5 5 - - - 9 - 19
Ending ALLL Balance at December 31, 2016 $ 261 $ 51 $ 7 $ 21 $ 17 $ 33 $ 5 $ 395
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 261 51 7 21 17 33 5 395
$ 261 $ 51 $ 7 $ 21 $ 17 $ 33 $ 5 $ 395
As of December 31, 2016
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2016 $ 222 $ 57 $ 7 $ 22 $ 16 $ 29 $ 7 $ 360
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions 39 (6 ) - (1 ) 1 4 (2 ) 35
Ending ALLL Balance at December 31, 2016 $ 261 $ 51 $ 7 $ 21 $ 17 $ 33 $ 5 $ 395
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 261 51 7 21 17 33 5 395
$ 261 $ 51 $ 7 $ 21 $ 17 $ 33 $ 5 $ 395
As of December 31, 2015
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at September 30, 2015 $ 143 $ 72 $ 9 $ 30 $ 31 $ 32 $ 6 $ 323
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions 19 12 (1 ) (1 ) (2 ) - 1 28
Ending ALLL Balance at December 31, 2015 $ 162 $ 84 $ 8 $ 29 $ 29 $ 32 $ 7 $ 351
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 162 84 8 29 29 32 7 351
$ 162 $ 84 $ 8 $ 29 $ 29 $ 32 $ 7 $ 351
As of December 31, 2015
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2015 $ 125 $ 63 $ 9 $ 30 $ 34 $ 37 $ 6 $ 304
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions (37 ) 21 (1 ) (1 ) (5 ) (5 ) 1 47
Ending ALLL Balance at December 31, 2015 $ 162 $ 84 $ 8 $ 29 $ 29 $ 32 $ 7 $ 351
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 162 84 8 29 29 32 7 351
$ 162 $ 84 $ 8 $ 29 $ 29 $ 32 $ 7 $ 351
During the three and six months ending December 31, 2016, the ALLL increased $0.019 million
and $0.035 million respectively. The primary reason for the changes in the ALLL balance, both in total, and within the identified segments, is changes in applicable loan balances. During the fiscal year ended June 30, 2016, the Company also increased its ALLL
reserve factors, due to increases in associated loan balances and qualitative factors throughout fiscal 2016, for the following loan segments:
Loan Segment 12/31/2016 Factor 12/31/2015 Factor
1 – 4 family 0.40% 0.35%
Construction:
1 – 4 family 0.75% 0.75%
5+ family 1.00% 1.00% During the three months ended December 31, 2015, the ALLL associated with multi-family residential
real estate loans, 1 – 4 family real estate loans, and construction loans increased $9 thousand, $8 thousand, and $5 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments, were
the increases in associated loan balances. During the six months ended December 31, 2015, the ALLL associated with the 1-4 non-performing |
