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Loans Receivable

6 Months Ended

Dec. 31, 2017

4. Loans receivable

The composition of the loan portfolio was as follows:

	December 31,			June 30,
(in thousands)	2017			2017

Residential real estate
One- to four-family	$	199,544		$	197,936
Multi-family		15,247			15,678
Construction		5,683			2,398
Land		869			1,304
Farm		2,385			2,062
Nonresidential real estate		30,053			29,211
Commercial nonmortgage		2,466			2,540
Consumer and other:
Loans on deposits		1,634			1,607
Home equity		7,110			6,853
Automobile		29			42
Unsecured		534			400
		265,554			260,031

Undisbursed portion of loans in process		(3,022	)		(296	)
Deferred loan origination fees (costs)		(195	)		42
Allowance for loan losses		(1,531	)		(1,533	)
	$	260,806		$	258,244

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2017:

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

Residential real estate:
One- to four-family	$	773	$	(29	)	$	(49	)	$	44	$	739
Multi-family		243		1			--			--		244
Construction		6		8			--			--		14
Land		4		(2	)		--			--		2
Farm		9		1			--			--		10
Nonresidential real estate		270		23			--			--		293
Commercial nonmortgage		6		--			--			--		6
Consumer and other:
Loans on deposits		4		--			--			--		4
Home equity		17		1			--			--		18
Automobile		--		--			--			--		--
Unsecured		1		--			--			--		1
Unallocated		200		--			--			--		200
Totals	$	1,533	$	3		$	(49	)	$	44	$	1,531

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2017:

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

Residential real estate:
One- to four-family	$	774	$	(9	)	$	(31	)	$	5	$	739
Multi-family		243		1			--			--		244
Construction		7		7			--			--		14
Land		2		--			--			--		2
Farm		10		--			--			--		10
Nonresidential real estate		284		9			--			--		293
Commercial nonmortgage		7		(1	)		--			--		6
Consumer and other:
Loans on deposits		5		(1	)		--			--		4
Home equity		20		(2	)		--			--		18
Automobile		--		--			--			--		--
Unsecured		2		(1	)		--			--		1
Unallocated		200		--			--			--		200
Totals	$	1,554	$	3		$	(31	)	$	5	$	1,531

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2016:

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

Residential real estate:
One- to four-family	$	862	$	34		$	(95	)	$	--	$	801
Multi-family		192		19			--			--		211
Construction		5		(1	)		--			--		4
Land		2		1			--			--		3
Farm		3		1			--			--		4
Nonresidential real estate		217		13			--			--		230
Commercial nonmortgage		18		(14	)		--			--		4
Consumer and other:
Loans on deposits		4		(1	)		--			--		3
Home equity		11		1			--			--		12
Automobile		--		--			--			--		--
Unsecured		1		3			(5	)		2		1
Unallocated		200		--			--			--		200
Totals	$	1,515	$	56		$	(100	)	$	2	$	1,473

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2016:

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

Residential real estate:
One- to four-family	$	803	$	50		$	(52	)	$	--	$	801
Multi-family		208		3			--			--		211
Construction		5		(1	)		--			--		4
Land		2		1			--			--		3
Farm		4		--			--			--		4
Nonresidential real estate		222		8			--			--		230
Commercial nonmortgage		15		(11	)		--			--		4
Consumer and other:
Loans on deposits		4		(1	)		--			--		3
Home equity		12		--			--			--		12
Automobile		--		--			--			--		--
Unsecured		1		3			(5	)		2		1
Unallocated		200		--			--			--		200
Totals	$	1,476	$	52		$	(57	)	$	2	$	1,473

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of December 31, 2017. The recorded investment in loans excludes accrued interest receivable and deferred loan costs, net due to immateriality. There were no impaired loans at December 31, 2017, that had a related specific allowance.

December 31, 2017:
	Unpaid Principal Balance and Recorded Investment
(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	$	2,864	$	1,318	$	4,182	$	--	$	--	$	--
Farm		538		--		538
Nonresidential real estate		125		--		125		--		--		--
		3,527		1,318		4,845		--		--		--

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	195,362	$	739	$	--	$	739
Multi-family						15,247		244		--		244
Construction						5,683		14		--		14
Land						869		2		--		2
Farm						1,847		10		--		10
Nonresidential real estate						29,928		293		--		293
Commercial nonmortgage						2,466		6		--		6
Consumer:
Loans on deposits						1,634		4		--		4
Home equity						7,110		18		--		18
Automobile						29		--		--		--
Unsecured						534		1		--		1
Unallocated						--		--		200		200
						260,709		1,331		200		1,531
					$	265,554	$	1,331	$	200	$	1,531

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, 2017. There were no impaired loans at June 30, 2017, that had a related specific allowance.

June 30, 2017:

	Unpaid Principal Balance and Recorded Investment
(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 nonmortgage						2,540		6		--		6
Consumer:
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

The following table presents interest income on loans individually evaluated for impairment by class of loans for the six months ended December 31:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2017						2016
With no related allowance recorded:
One- to four-family	$	3,285	$	3	$	3	$	3,774	$	3	$	3
Farm		269		--		--		--		--		--
Nonresidential real estate		128		--		--		--		--		--
Purchased credit-impaired loans		1,497		39		39		2,073		40		40
		5,179		42		42		5,847		43		43
With an allowance recorded:
One- to four-family		--		--		--		--		--		--
	$	5,179	$	42	$	42	$	5,847	$	43	$	43

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended December 31:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2017						2016
With no related allowance recorded:
One- to four-family	$	3,030	$	1	$	1	$	3,960	$	1	$	1
Farm		269		--		--		--		--		--
Nonresidential real estate		128		--		--		--		--		--
Purchased credit-impaired loans		1,410		9		9		1,955		26		26
		4,837		10		10		5,915		27		27
With an allowance recorded:
One- to four-family		--		--		--		--		--		--
	$	4,837	$	10	$	10	$	5,915	$	27	$	27

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2017 and June 30, 2017:

	December 31, 2017				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	$	3,845	$	1,719	$	4,870	$	1,770
Farm		538		--		--		--
Nonresidential real estate and land		143		273		151		--
Home equity		4		--		--		--
Consumer		3		--		8		11
	$	4,533	$	1,992	$	5,029	$	1,781

Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.” At December 31, 2017 and June 30, 2017, the Company had $1.5 million loans classified as TDRs. Of the TDRs at December 31, 2017, approximately 17.4% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

The following table summarizes TDR loan modifications that occurred during the six months ended December 31, 2017 and 2016, and their performance, by modification type:

(in thousands)	Troubled Debt Restructurings Performing to Modified Terms		Troubled Debt Restructurings Not Performing to Modified Terms		Total Troubled Debt Restructurings

Six months ended December 31, 2017
Residential real estate:
Terms extended and additional funds advanced	$	325	$	--	$	325

Six months ended December 31, 2016
Residential real estate:
Terms extended	$	98	$	--	$	98

The following table summarizes TDR loan modifications that occurred during the three months ended December 31, 2017 and 2016, and their performance, by modification type:

(in thousands)	Troubled Debt Restructurings Performing to Modified Terms		Troubled Debt Restructurings Not Performing to Modified Terms		Total Troubled Debt Restructurings

Three months ended December 31, 2017
Residential real estate:
Terms extended and additional funds advanced	$	11	$	--	$	11

Three months ended December 31, 2016
Residential real estate:
Terms extended	$	98	$	--	$	98

The Company had two TDRs during the six months ended December 31, 2017, while there was one TDR during the six months ended December 31, 2016. The Company had no allocated specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of December 31, 2017 or at June 30, 2017. The Company had no commitments to lend on loans classified as TDRs at December 31, 2017 or June 30, 2017.

Four TDRs with a carrying value of $136,000 defaulted during the six-month period ended December 31, 2017. The properties were taken into REO and sold. There were no TDRs that defaulted during the six-month period ended December 31, 2016.

The following table presents the aging of the principal balance outstanding in past due loans as of December 31, 2017, by class of loans:

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

Residential real estate:
One-to four-family	$	4,410	$	3,274	$	7,684	$	191,860	$	199,544
Multi-family		--		--		--		15,247		15,247
Construction		--		--		--		5,683		5,683
Land		--		--		--		869		869
Farm		--		538		538		1,847		2,385
Nonresidential real estate		304		273		577		29,476		30,053
Commercial non-mortgage		--		--		--		2,466		2,466
Consumer and other:
Loans on deposits		--		--		--		1,634		1,634
Home equity		34		--		34		7,076		7,110
Automobile		--		--		--		29		29
Unsecured		6		--		6		528		534
Total	$	4,754	$	4,085	$	8,839	$	256,715	$	265,554

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2017, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater 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 nonmortgage		--		--		--		2,540		2,540
Consumer:
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 December 31, 2017, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(in thousands)	Pass		Special Mention		Substandard		Doubtful		Not rated

Residential real estate:
One- to four-family	$	--	$	1,383	$	9,463	$	--	$	188,698
Multi-family		14,595		--		652		--		--
Construction		5,683		--		--		--		--
Land		869		--		--		--		--
Farm		1,847		--		538		--		--
Nonresidential real estate		29,333		--		720		--		--
Commercial nonmortgage		2,463		--		3		--		--
Consumer:
Loans on deposits		1,634		--		--		--		--
Home equity		7,016		58		36		--		--
Automobile		29		--		--		--		--
Unsecured		526		--		8		--		--
	$	63,995	$	1,441	$	11,420	$	--	$	188,698

At June 30, 2017, the risk category of loans by class of loans was as follows:

(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 nonmortgage		2,513		27		--		--		--
Consumer:
Loans on deposits		1,607		--		--		--		--
Home equity		6,744		93		16		--		--
Automobile		42		--		--		--		--
Unsecured		396		--		4		--		--
	$	60,129	$	6,230	$	11,729	$	--	$	181,943

Purchased Credit Impaired Loans:

The Company purchased loans during fiscal year 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 $388,000 at December 31, 2017 and June 30, 2017, respectively, is as follows:

(in thousands)	December 31, 2017		June 30, 2017

One- to four-family residential real estate	$	1,318	$	1,676
Nonresidential real estate		--		--
Outstanding balance	$	1,318	$	1,676

Accretable yield, or income expected to be collected on loans purchased during fiscal year 2013, is as follows:

	Six months ended December 31,						Three months ended December 31,
	2017			2016			2017			2016

Balance at beginning of period	$	720		$	981		$	699		$	935
Accretion of income		(43	)		(92	)		(21	)		(46	)
Reclassifications from nonaccretable difference		--			60			--			60
Disposals, net of recoveries		1			(49	)		--			(49	)
Balance at end of period	$	678		$	900		$	678		$	900

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2017, nor for the six-month period ended December 31, 2017. Neither were any allowance for loan losses reversed during those periods.