| 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 March 31, 2017 and June 30, 2016.
March 31, 2017 June 30, 2016
Total Individually Collectively evaluated for impairment Total Individually Collectively evaluated for impairment
(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings $ 61,122 $ - $ 61,122 $ 49,411 $ - $ 49,411
Construction 2,978 - 2,978 4,783 - 4,783
Land acquisition & development 643 - 643 666 - 666
Multi-family dwellings 3,719 - 3,719 3,961 - 3,961
Commercial 2,163 - 2,163 1,592 - 1,592
Consumer Loans
Home equity 963 - 963 802 - 802
Home equity lines of credit 2,254 - 2,254 1,900 - 1,900
Other 197 - 197 150 - 150
Commercial Loans 896 - 896 1,456 - 1456
$ 74,935 $ - $ 74,935 $ 64,721 $ - $ 64,721
Plus: Deferred loan costs 406 312
Allowance for loan losses (410 ) (360 )
Total $ 74,931 $ 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 March 31, 2017 and June 30, 2016,
and the related interest income recognized for the three and nine months ended March 31, 2017 and March 31, 2016:
March 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 Nine Months Ended
March 31, March 31, March 31, March 31,
(Dollars in Thousands)
Average impaired loans
Construction loans $ - $ - $ - $ -
Land acquisition & development loans - - - -
Commercial real estate loans - - - 16
Home equity lines of credit - - - -
Total $ - $ - $ - $ 16
Income recognized on impaired loans
Construction loans $ - $ - $ - $ -
Land acquisition & development loans - - - -
Commercial real estate loans - - - 1
Home equity lines of credit - - - -
Total $ - $ - $ - $ 1
Total nonaccrual loans as of March 31, 2017 and June 30, 2016 and the related interest income
recognized for the three and nine months ended March 31, 2017 and March 31, 2016 are as follows:
March 31, June 30,
(Dollars in Thousands)
Principal outstanding
1 – 4 family dwellings $ 248 $ 254
Construction - -
Land acquisition & development - -
Commercial real estate - -
Home equity lines of credit - -
Total $ 248 $ 254
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
(Dollars in Thousands)
Average nonaccrual loans
1 – 4 family dwellings $ 249 $ 256 $ 251 $ 258
Construction - - - -
Land acquisition & development - - - -
Commercial real estate - - - 16
Home equity lines of credit - - - -
Total $ 249 $ 256 $ 251 $ 274
Income that would have been recognized $ 5 $ 4 $ 11 $ 13
Interest income recognized $ 3 $ 7 $ 13 $ 17 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 nine months ended March 31, 2017,
there were no troubled debt restructurings, and no troubled debt restructurings that subsequently defaulted. One previously modified TDR, secured by commercial real estate, was paid off in full during the nine months ended March 31, 2016. The following tables include the recorded investment and number of modifications for modified loans, as of March 31, 2016. The
Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.
For the Three Months Ended
Number of Pre-Modification
Post-Modification Investment
(Dollars in Thousands)
Troubled debt restructurings:
Commercial real estate - $ - $ -
Troubled debt restructurings that subsequently defaulted:
Commercial real estate - $ - $ -
For the Nine Months Ended
Number of Pre-Modification
Post-Modification Investment
(Dollars in Thousands)
Troubled debt restructurings:
Commercial real estate 1 $ 49 $ 49
Troubled debt restructurings that subsequently defaulted:
Commercial real estate - $ - $ - 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 March 31, 2017 and June 30, 2016:
Current 30 –59 60 –89 90 Days + 90 Days + Non-accrual Total Total
(Dollars in Thousands)
March 31, 2017
First mortgage loans:
1 – 4 family dwellings $ 60,874 $ - $ - $ - $ 248 $ 248 $ 61,122
Construction 2,978 - - - - - 2,978
Land acquisition & development 643 - - - - - 643
Multi-family dwellings 3,719 - - - - - 3,719
Commercial 2,163 - - - - - 2,163
Consumer Loans:
Home equity 963 - - - - - 963
Home equity lines of credit 2,254 - - - - - 2,254
Other 197 - - - - - 197
Commercial Loans 896 - - - - - 896
$ 74,687 $ - $ - $ - $ 248 $ 248 74,935
Plus: Deferred loan fees 406
Allowance for loan losses (410 )
Net Loans Receivable $ 74,931
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
$ 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 March 31, 2017. 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 March 31, 2017 and June 30, 2016.
March 31, 2017
Construction Land Acquisition & Loans Multi-family Commercial Estate Commercial
(Dollars in Thousands)
Pass $ 2,978 $ 643 $ 3,719 $ 2,163 $ 896
Special Mention - - - - -
Substandard - - - - -
Doubtful - - - - -
Ending Balance $ 2,978 $ 643 $ 3,719 $ 2,163 $ 896
June 30, 2016
Construction Land & Development Multi-family 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
March 31, 2017
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 60,874 $ 3,414
Non-performing 248 -
Total $ 61,122 $ 3,414
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 The Company
had no unallocated loss allowance balance at March 31, 2017 at June 30, 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 March 31, 2017 and 2016. Activity in the allowance is
presented for the three and nine months ended March 31, 2017 and 2016.
For the three months ended March 31, 2017
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at December 31, 2016 $ 261 $ 51 $ 7 $ 21 $ 17 $ 33 $ 5 $ 395
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions 27 (15 ) (1 ) (1 ) 5 1 (1 ) 15
Ending ALLL Balance at March 31, 2017 $ 288 $ 36 $ 6 $ 20 $ 22 $ 34 $ 4 $ 410
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 288 36 6 20 22 34 4 410
$ 288 $ 36 $ 6 $ 20 $ 22 $ 34 $ 4 $ 410
For the nine months ended March 31, 2017
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 66 (21 ) (1 ) (2 ) 6 5 (3 ) 50
Ending ALLL Balance at March 31, 2017 $ 288 $ 36 $ 6 $ 20 $ 22 $ 34 $ 4 $ 410
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 288 36 6 20 22 34 4 410
$ 288 $ 36 $ 6 $ 20 $ 22 $ 34 $ 4 $ 410
For the three months ended March 31, 2016
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at December 31, 2015 $ 162 $ 84 $ 8 $ 29 $ 29 $ 32 $ 7 $ 351
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions 39 (13 ) (1 ) 4 (8 ) (2 ) 2 21
Ending ALLL Balance at March 31, 2016 $ 201 $ 71 $ 7 $ 33 $ 21 $ 30 $ 9 $ 372
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 201 71 7 33 21 30 9 372
$ 201 $ 71 $ 7 $ 33 $ 21 $ 30 $ 9 $ 372
For the nine months ended March 31, 2016
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 76 8 (2 ) 3 (13 ) (7 ) 3 68
Ending ALLL Balance at March 31, 2016 $ 201 $ 71 $ 7 $ 33 $ 21 $ 30 $ 9 $ 372
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 201 71 7 33 21 30 9 372
$ 201 $ 71 $ 7 $ 33 $ 21 $ 30 $ 9 $ 372
During the three months ended March 31, 2017, the primary changes to the ALLL were comprised of a
$27 thousand increase attributable to 1-4 During the nine months ended March 31, 2017, the ALLL associated with
1-4 The primary reason for the changes in the ALLL balance for both periods, in total, and within the identified segments, is changes in
applicable loan balances. During the three months ended March 31, 2016, the ALLL associated with the 1-4 1-4 1-4 During the nine months ended March 31, 2016, the ALLL associated with 1-4 1-4 1-4
During the three and nine months ended March 31, 2017, the Company also increased its
ALLL reserve factors, due to increases in associated loan balances and qualitative factors for the following loan segment:
Loan Segment 03/31/2017 Factor 06/30/2016 Factor
1 – 4 family 0.43% 0.40% |
