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Loans

12 Months Ended

Jun. 30, 2018

NOTE C - LOANS

The composition of the loan portfolio at June 30 was as follows:

(in thousands)	2018			2017

Residential real estate
One- to four-family	$	207,075		$	197,936
Multi-family		15,113			15,678
Construction		5,055			2,398
Land		677			1,304
Farm		2,295			2,062
Nonresidential real estate		32,413			29,211
Commercial and industrial		1,917			2,540
Consumer and other
Loans on deposits		1,470			1,607
Home equity		7,603			6,853
Automobile		63			42
Unsecured		508			400
		274,189			260,031

Undisbursed portion of loans in process		(2,136	)		(296	)
Deferred loan origination costs, net		(167	)		42
Allowance for loan losses		(1,576	)		(1,533	)
	$	270,310		$	258,244

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2018 and 2017. There were $1.1 million and $1.7 million in loans acquired with deteriorated credit quality at June 30, 2018 and 2017, respectively.

June 30, 2018:
(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality*		Ending loans balance		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	2,977	$	1,138	$	4,115	$	--	$	--	$	--
Farm		310		--		310
Nonresidential real estate		122		--		122		--		--		--
		3,409		1,138		4,547		--		--		--

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	202,960	$	795	$	--	$	795
Multi-family						15,113		225		--		225
Construction						5,055		8		--		8
Land						677		1		--		1
Farm						1,985		6		--		6
Nonresidential real estate						32,291		321		--		321
Commercial and industrial						1,917		3		--		3
Consumer and other
Loans on deposits						1,470		3		--		3
Home equity						7,603		13		--		13
Automobile						63		--		--		--
Unsecured						508		1		--		1
Unallocated						--		--		200		200
						269,642		1,376		200		1,576
					$	274,189	$	1,376	$	200	$	1,576

* These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition.

June 30, 2017:
(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality*		Ending loans balance		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,706	$	1,676	$	5,382	$	--	$	--	$	--
Nonresidential real estate		131		--		131		--		--		--
		3,837		1,676		5,513		--		--		--

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	192,554	$	773	$	--	$	773
Multi-family						15,678		243		--		243
Construction						2,398		6		--		6
Land						1,304		4		--		4
Farm						2,062		9		--		9
Nonresidential real estate						29,080		270		--		270
Commercial and industrial						2,540		6		--		6
Consumer and other
Loans on deposits						1,607		4		--		4
Home equity						6,853		17		--		17
Automobile						42		--		--		--
Unsecured						400		1		--		1
Unallocated						--		--		200		200
						254,518		1,333		200		1,533
					$	260,031	$	1,333	$	200	$	1,533

* These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition.

The following tables present impaired loans by class of loans as of and for the years ended June 30, 2018 and 2017:

June 30, 2018:

(in thousands)	Unpaid Principal Balance and Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized

With no related allowance recorded:
Residential real estate:
One- to four-family	$	4,115	$	--	$	4,507	$	97	$	71
Farm		310		--		310
Nonresidential real estate		122		--		122		--		--
Total	$	4,547	$	--	$	4,939	$	97	$	71

June 30, 2017:

(in thousands)	Unpaid Principal Balance and Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized

With no related allowance recorded:
Residential real estate:
One- to four-family	$	5,382	$	--	$	5,653	$	71	$	71
Nonresidential real estate		131		--		131		--		--
Consumer and other
Unsecured		--		--		7		--		--
Total	$	5,513	$	--	$	5,784	$	71	$	71

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual status by class of loans as of June 30, 2018 and 2017. The tables include loans acquired with deteriorated credit quality. At June 30, 2018, the table below includes approximately $764,000 of loans on nonaccrual and $374,000 of loans past due over 90 days and still accruing of loans acquired with deteriorated credit quality, while at June 30, 2017, approximately $566,000 of loans on nonaccrual and $486,000 of loans past due over 90 days and still accruing represent such loans.

	June 30, 2018				June 30, 2017
(in thousands)	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing

One- to four-family residential real estate	$	4,210	$	2,419	$	4,870	$	1,770
Farm		310		--
Nonresidential real estate		708		--		151		--
Commercial and industrial		7		--
Consumer		11		--		8		11
	$	5,246	$	2,419	$	5,029	$	1,781

Troubled Debt Restructurings:

During the year ended June 30, 2018, the terms of four one- to four family residential real estate loans totaling $440,000 were modified as troubled debt restructurings (“TDRs.”) Two loans totaling $325,000 were refinanced because we determined the borrowers could likely not have obtained financing from another lender given their circumstances at the time of refinancing. Two loans totaling $93,000 were modified under Chapter 7 bankruptcy proceedings in which neither borrower re-affirmed his personal liability to repay the loan. One loan totaling $23,000 was modified to reduce the interest rate and to extend the loan term. Although the interest rate on this loan was the same rate offered to other customers at the time, the credit was determined to be a TDR because the borrower’s credit worthiness had deteriorated. Because the restructured loan bears interest at the same rate offered to other such borrowers and the repayment period was extended slightly, the borrower is expected to be able to service the debt as restructured.

During the year ended June 30, 2017, the terms of a single one- to four family residential real estate loan totaling $99,000 was modified as a troubled debt restructuring (“TDR.”) The loan was modified to extend the loan term, because the borrower was exhibiting financial difficulty in making the original debt payments. Because the restructured loan bears interest at the same rate offered to other such borrowers and the repayment period was extended slightly, the borrower is expected to be able to service the debt as restructured.

In order to determine whether a borrower is experiencing financial difficulty, we consider the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The Company had no allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2018 or 2017. At June 30, 2018 and 2017, TDR loans on nonaccrual status totaled $1.5 million and $1.2 million, respectively. The Company had no commitments to lend additional amounts as of June 30, 2018 and 2017, to customers with outstanding loans that are classified as troubled debt restructurings. The Company had four loans totaling $136,000 which were modified in the prior twelve months and defaulted during fiscal 2018 and had no TDR loans that were modified in the prior twelve months and default during fiscal 2017.

The following tables present the aging of the principal balance outstanding in accruing past due loans as of June 30, 2018 and 2017, by class of loans. The tables include loans acquired with deteriorated credit quality. At June 30, 2018, the table below includes $277,000 of loans 30-89 days past due and approximately $371,000 of loans past due over 90 days that were acquired with deteriorated credit quality, while at June 30, 2017, the table below includes $25,000 of loans 30-89 days past due and approximately $1.0 million of loans past due over 90 days of such loans.

June 30, 2018:

(in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate:
One-to four-family	$	3,182	$	4,051	$	7,233	$	199,842	$	207,075
Multi-family		792		--		792		14,321		15,113
Construction		--		--		--		5,055		5,055
Land		--		--		--		677		677
Farm		--		--		--		2,295		2,295
Nonresidential real estate		--		269		269		32,144		32,413
Commercial and industrial		--		--		--		1,917		1,917
Consumer and other:
Loans on deposits		--		--		--		1,470		1,470
Home equity		9		5		14		7,589		7,603
Automobile		--		--		--		63		63
Unsecured		3		--		3		505		508
Total	$	3,986	$	4,325	$	8,311	$	265,878	$	274,189

June 30, 2017:

(in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate:
One-to four-family	$	5,193	$	4,496	$	9,689	$	188,247	$	197,936
Multi-family		--		--		--		15,678		15,678
Construction		--		--		--		2,398		2,398
Land		--		--		--		1,304		1,304
Farm		539		--		539		1,523		2,062
Nonresidential real estate		635		133		768		28,443		29,211
Commercial and industrial		--		--		--		2,540		2,540
Consumer and other:
Loans on deposits		--		--		--		1,607		1,607
Home equity		17		11		28		6,825		6,853
Automobile		--		--		--		42		42
Unsecured		13		--		13		387		400
Total	$	6,397	$	4,640	$	11,037	$	248,994	$	260,031

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in 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, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of June 30, 2018 and 2017, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows:

June 30, 2018:
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Not rated

Residential real estate:
One- to four-family	$	--	$	1,093	$	10,215	$	--	$	195,767
Multi-family		14,445		--		668		--		--
Construction		5,055		--		--		--		--
Land		677		--		--		--		--
Farm		1,985		--		310		--		--
Nonresidential real estate		31,700		--		713		--		--
Commercial and industrial		1,910		--		7		--		--
Consumer and other:
Loans on deposits		1,470		--		--		--		--
Home equity		7,603		--		--		--		--
Automobile		63		--		--		--		--
Unsecured		506		--		2		--		--
Total	$	65,414	$	1,093	$	11,915	$	--	$	195,767

June 30, 2017:
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Not rated

Residential real estate:
One- to four-family	$	--	$	6,110	$	9,883	$	--	$	181,943
Multi-family		14,541		--		1,137		--		--
Construction		2,398		--		--		--		--
Land		1,304		--		--		--		--
Farm		1,523		--		539		--		--
Nonresidential real estate		29,061		--		150		--		--
Commercial and industrial		2,513		27		--		--		--
Consumer and other:
Loans on deposits		1,607		--		--		--		--
Home equity		6,744		93		16		--		--
Automobile		42		--		--		--		--
Unsecured		396		--		4		--		--
Total	$	60,129	$	6,230	$	11,729	$	--	$	181,943

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended June 30, 2018 and 2017:

June 30, 2018:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance

Residential real estate:
One- to four-family	$	773	$	164		$	(240	)	$	98	$	795
Multi-family		243		(18	)		--			--		225
Construction		6		2			--			--		8
Land		4		(3	)		--			--		1
Farm		9		(3	)		--			--		6
Nonresidential real estate		270		51			--			--		321
Commercial and industrial		6		(3	)		--			--		3
Consumer and other:
Loans on deposits		4		(1	)		--			--		3
Home equity		17		(4	)		--			--		13
Unsecured		1		--			--			--		1
Unallocated		200		--			--			--		200
Totals	$	1,533	$	185		$	(240	)	$	98	$	1,576

June 30, 2017:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance

Residential real estate:
One- to four-family	$	862	$	132		$	(226	)	$	5	$	773
Multi-family		192		51			--			--		243
Construction		5		1			--			--		6
Land		2		2			--			--		4
Farm		3		6			--			--		9
Nonresidential real estate		217		53			--			--		270
Commercial and industrial		18		(12	)		--			--		6
Consumer and other:
Loans on deposits		4		--			--			--		4
Home equity		11		6			--			--		17
Unsecured		1		3			(5	)		2		1
Unallocated		200		--			--			--		200
Totals	$	1,515	$	242		$	(231	)	$	7	$	1,533

Purchased Loans:

The Company purchased loans during the fiscal year ended June 30, 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $383,000 and $388,000, at June 30, 2018 and 2017, respectively, was as follows:

(in thousands)	2018		2017

Residential real estate:
One- to four-family	$	1,138	$	1,676

Accretable yield, or income expected to be collected on loans purchased during fiscal year 2013, for the years ended June 30 was as follows:

(in thousands)	2018			2017

Balance at beginning of year	$	720		$	981
Accretion of income		(86	)		(159	)
Reclassifications from nonaccretable difference		--			60
Disposals		--			(162	)
Balance at end of year	$	634		$	720

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the years ended June 30, 2018 or 2017, nor were any allowance for loan losses reversed during those years.