| 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 September 30, 2017 and June 30, 2017.
September 30, 2017 June 30, 2017
Total Individually evaluated for impairment Collectively evaluated for impairment Total Loans Individually evaluated for impairment Collectively evaluated for
(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings $ 66,620 $ - $ 66,620 $ 65,153 $ - $ 65,153
Construction 2,580 - 2,580 1,866 - 1,866
Land acquisition & development 156 - 156 462 - 462
Multi-family dwellings 3,587 - 3,587 3,653 - 3,653
Commercial 2,119 - 2,119 2,033 - 2,033
Consumer Loans
Home equity 917 - 917 1,017 - 1,017
Home equity lines of credit 2,361 - 2,361 2,275 - 2,275
Other 173 - 173 139 - 139
Commercial Loans 793 - 793 841 - 841
$ 79,306 $ - $ 79,306 $ 77,439 $ - $ 77,439
Plus: Deferred loan costs 446 434
Allowance for loan losses (423 ) (418 )
Total $ 79,329 $ 77,455
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 As of September 30, 2017 and June 30, 2017, there were no loans considered to be impaired. Total nonaccrual loans as of September 30, 2017 and June 30, 2017 and the related
interest income recognized for the three months ended September 30, 2017 and September 30, 2016 are as follows:
September 30, June 30,
(Dollars in Thousands)
Principal outstanding
1 – 4 family dwellings $ 244 $ 246
Construction - -
Land acquisition & development - -
Commercial real estate - -
Home equity lines of credit - -
Total $ 244 $ 246
Three Months Ended
September 30, September 30,
(Dollars in Thousands)
Average nonaccrual loans
1 – 4 family dwellings $ 245 $ 252
Construction - -
Land acquisition & development - -
Commercial real estate - -
Home equity lines of credit - -
Total $ 245 $ 252
Income that would have been recognized $ 7 $ 10
Interest income recognized $ 7 $ 6
Interest income foregone $ - $ - The CompanyÂ’s loan portfolio may also include 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 months ended
September 30, 2017 and 2016, there were no troubled debt restructurings, and no troubled debt restructurings 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 September 30, 2017 and June 30, 2017:
Current 30 –59 60 –89 90 Days + 90 Days + Non-accrual Total Total
(Dollars in Thousands)
September 30, 2017
First mortgage loans:
1 – 4 family dwellings $ 66,376 $ - $ - $ - $ 244 $ 244 $ 66,620
Construction 2,580 - - - - - 2,580
Land acquisition & development 156 - - - - - 156
Multi-family dwellings 3,587 - - - - - 3,587
Commercial 2,119 - - - - - 2,119
Consumer Loans:
Home equity 917 - - - - - 917
Home equity lines of credit 2,361 - - - - - 2,361
Other 173 - - - - - 173
Commercial Loans 793 - - - - - 793
$ 79,062 $ - $ - $ - $ 244 $ 244 79,306
Plus: Deferred loan fees 446
Allowance for loan losses (423 )
Net Loans Receivable $ 79,329
Current 30 – 59 60 – 89 90 Days + 90 Days + Non-accrual Total Total
(Dollars in Thousands)
June 30, 2017
First mortgage loans:
1 – 4 family dwellings $ 64,907 $ - $ - $ - $ 246 $ 246 $ 65,153
Construction 1,866 - - - - - 1,866
Land acquisition & development 462 - - - - - 462
Multi-family dwellings 3,653 - - - - - 3,653
Commercial 2,033 - - - - - 2,033
Consumer Loans
Home equity 1,017 - - - - - 1,017
Home equity lines of credit 2,275 - - - - - 2,275
Other 139 - - - - - 139
Commercial Loans 841 - - - - - 841
$ 77,193 $ - $ - $ - $ 246 $ 246 77,439
Plus: Deferred loan fees 434
Allowance for loan losses (418 )
Net Loans Receivable $ 77,455
Credit quality information The following tables represent credit exposure by internally assigned grades for the periods ended September 30, 2017 and
June 30, 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 September 30, 2017 and June 30, 2017.
September 30, 2017
(Dollars in Thousands)
Construction Land & Multi-family Commercial Real Estate Commercial
Pass $ 2,580 $ 156 $ 3,587 $ 2,119 $ 793
Special Mention - - - - -
Substandard - - - - -
Doubtful - - - - -
Ending Balance $ 2,580 $ 156 $ 3,587 $ 2,119 $ 793
June 30, 2017
(Dollars in Thousands)
Construction Land & Loans Multi-family Residential Commercial Real Estate Commercial
Pass $ 1,866 $ 462 $ 3,653 $ 2,033 $ 841
Special Mention - - - - -
Substandard - - - - -
Doubtful - - - - -
Ending Balance $ 1,866 $ 462 $ 3,653 $ 2,033 $ 841
The following table presents performing and non-performing
September 30, 2017
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 66,376 $ 3,451
Non-performing 244 -
Total $ 66,620 $ 3,451
June 30, 2017
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 64,907 $ 3,431
Non-performing 246 -
Total $ 65,153 $ 3,431
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
September 30, 2017. 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 September 30, 2017 and 2016. Activity in the allowance is presented for the three months ended
September 30, 2017 and 2016.
As of September 30, 2017
First Mortgage Loans
1 – 4 Construction Land Multi- Commercial Consumer Commercial Total
(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2017 $ 305 $ 30 $ 5 $ 20 $ 20 $ 34 $ 4 $ 418
Charge-offs - - - - - - - -
Recoveries - - - - - - - -
Provisions 6 2 (3 ) - 1 - (1 ) 5
Ending ALLL Balance at September 30, 2017 $ 311 $ 32 $ 2 $ 20 $ 21 $ 34 $ 3 $ 423
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 311 32 2 20 21 34 3 423
$ 311 $ 32 $ 2 $ 20 $ 21 $ 34 $ 3 $ 423
As of September 30, 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 34 (11 ) - (1 ) 1 (5 ) (2 ) 16
Ending ALLL Balance at September 30, 2016 $ 256 $ 46 $ 7 $ 21 $ 17 $ 24 $ 5 $ 376
Individually evaluated for impairment $ - $ - $ - $ - $ - $ - $ - $ -
Collectively evaluated for impairment 256 46 7 21 17 24 5 376
$ 256 $ 46 $ 7 $ 21 $ 17 $ 24 $ 5 $ 376
During the three months ended September 30, 2017, the ALLL associated with the 1 – 4 family
and construction loan portfolios increased by $6 thousand and $2 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments was the increase in the associated loan balances. The ALLL for land
acquisition and development loans decreased $3 thousand due to lower loan balances within this segment. During the three
months ended September 30, 2016 the Company’s ALLL increased by $16 thousand. This increase in the ALLL was primarily attributable to a $34 thousand increase in the ALLL associated with the 1 – 4 family segment, which was
partially offset by decreases in the construction, consumer and commercial (non-real |
