| NET LOANS RECEIVABLE | 8. 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, 2019 and 2018, the Company had approximately $3.6 million and
$1.8 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, 2019 and 2018, 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 to those directors, executive officers, or their associates during the fiscal years ended June 30, 2019 and 2018. The following table summarizes the primary segments of the loan portfolio as of June 30, 2019 and June 30, 2018.
June 30, 2019 June 30, 2018
Total Individually Collectively Total Individually Collectively
(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings $ 76,789 $ — $ 76,789 $ 72,237 $ — $ 72,237
Construction 2,907 — 2,907 1,769 — 1,769
Land acquisition & development 694 — 694 — — —
Multi-family dwellings 3,123 — 3,123 3,390 — 3,390
Commercial 3,727 — 3,727 3,482 — 3,482
Consumer Loans
Home equity 906 — 906 861 — 861
Home equity lines of credit 1,953 — 1,953 2,177 — 2,177
Other 112 — 112 125 — 125
Commercial Loans 418 — 418 633 — 633
$ 90,629 $ — $ 90,629 $ 84,674 $ — $ 84,674
Less: Deferred loan costs 507 469
Allowance for loan losses (548 ) (468 )
Total $ 90,588 $ 84,675
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. At June 30, 2019 and 2018, there were no loans considered to be impaired. Total nonaccrual loans as of June 30, 2019 and June 30, 2018 and the related
interest income recognized during the fiscal years ended June 30, 2019 and June 30, 2018 are as follows:
June 30, June 30,
(Dollars in Thousands)
Principal outstanding:
1 – 4 family dwellings $ 225 $ 235
Construction — —
Land acquisition & development — —
Commercial real estate — —
Home equity lines of credit — —
Total $ 225 $ 235
Average nonaccrual loans:
1 – 4 family dwellings $ 231 $ 242
Construction — —
Land acquisition & development — —
Commercial real estate — —
Home equity lines of credit — —
Total $ 231 $ 242
Income that would have been recognized $ 15 $ 15
Interest income recognized $ 15 $ 21
Interest income foregone $ — $ — The Company’s loan portfolio may 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 fiscal 2019 and 2018, there were no loans modified and
considered a trouble debt restructuring. At June 30, 2019 and 2018, 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 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) 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. 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, 2019 and 2018:
Current 30 – 59 60 – 89 90 Days + Accruing 90 Days + Non- accrual Total Total Loans
(Dollars in Thousands)
June 30, 2019
First mortgage loans:
1 – 4 family dwellings $ 76,564 $ — $ — $ — $ 225 $ 225 $ 76,789
Construction 2,907 — — — — — 2,907
Land acquisition & development 694 — — — — — 694
Multi-family dwellings 3,123 — — — — — 3,123
Commercial 3,727 — — — — — 3,727
Consumer Loans
Home equity 906 — — — — — 906
Home equity lines of credit 1,953 — — — — — 1,953
Other 112 — — — — — 112
Commercial Loans 418 — — — — — 418
$ 90,404 $ — $ — $ — $ 225 $ 225 90,629
Deferred loan costs 507
Allowance for loan losses (548 )
Net Loans Receivable $ 90,588
Current 30 – 59 60 – 89 90 Days + Accruing 90 Days + Past Due Non-accrual Total Total Loans
(Dollars in Thousands)
June 30, 2018
First mortgage loans:
1 – 4 family dwellings $ 72,002 $ — $ — $ — $ 235 $ 235 $ 72,237
Construction 1,769 — — — — — 1,769
Land acquisition & development — — — — — — —
Multi-family dwellings 3,390 — — — — — 3,390
Commercial 3,482 — — — — — 3,482
Consumer Loans
Home equity 861 — — — — — 861
Home equity lines of credit 2,177 — — — — — 2,177
Other 125 — — — — — 125
Commercial Loans 633 — — — — — 633
$ 84,439 $ — $ — $ — $ 235 $ 235 84,674
Deferred loan costs 469
Allowance for loan losses (468 )
Net Loans Receivable $ 84,675
Credit Quality Information The following tables represent credit exposure by internally assigned grades for the fiscal years ended June 30, 2019 and 2018. 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 June 30, 2019 and 2018.
June 30, 2019
Construction Land Multi-family Commercial Commercial
(Dollars in Thousands)
Pass $ 2,907 $ 694 $ 3,123 $ 3,727 $ 418
Special Mention — — — — —
Substandard — — — — —
Doubtful — — — — —
Ending Balance $ 2,907 $ 694 $ 3,123 $ 3,727 $ 418
June 30, 2018
Construction Land Multi-family Commercial Commercial
(Dollars in Thousands)
Pass $ 1,769 $ — $ 3,390 $ 3,482 $ 633
Special Mention — — — — —
Substandard — — — — —
Doubtful — — — — —
Ending Balance $ 1,769 $ — $ 3,390 $ 3,482 $ 633
The following table presents performing and
non-performing
June 30, 2019
1 – 4 Family Consumer
(Dollars in Thousands)
Performing $ 76,564 $ 2,971
Non-performing 225 —
Total $ 76,789 $ 2,971
June 30, 2018
1 –4 Family Consumer
(Dollars in Thousands)
Performing $ 72,002 $ 3,163
Non-performing 235 —
Total $ 72,237 $ 3,163 |
