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Loans Receivable

9 Months Ended

Mar. 31, 2019

4. Loans receivable

The composition of the loan portfolio was as follows:

	March 31,			June 30,
(in thousands)	2019			2018

Residential real estate
One- to four-family	$	208,658		$	206,908
Multi-family		15,573			15,113
Construction		2,662			2,919
Land		678			677
Farm		2,552			2,295
Nonresidential real estate		31,012			32,413
Commercial nonmortgage		2,167			1,917
Consumer and other:
Loans on deposits		1,537			1,470
Home equity		7,920			7,603
Automobile		56			63
Unsecured		384			508
		273,199			271,886
Allowance for loan losses		(1,529	)		(1,576	)
	$	271,670		$	270,310

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2019:

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

Residential real estate:
One- to four-family	$	795	$	27		$	(117	)	$	39	$	744
Multi-family		225		(9	)		--			--		216
Construction		8		(4	)		--			--		4
Land		1		--			--			--		1
Farm		6		(1	)		--			--		5
Nonresidential real estate		321		20			--			--		341
Commercial nonmortgage		3		--			--			--		3
Consumer and other:
Loans on deposits		3		--			--			--		3
Home equity		13		(1	)		--			--		12
Automobile		--		--			--			--		--
Unsecured		1		(21	)		--			20		--
Unallocated		200		--			--			--		200
Totals	$	1,576	$	11		$	(117	)	$	59	$	1,529

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2019:

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

Residential real estate:
One- to four-family	$	734	$	10		$	--	$	--	$	744
Multi-family		220		(4	)		--		--		216
Construction		3		1			--		--		4
Land		1		--			--		--		1
Farm		5		--			--		--		5
Nonresidential real estate		346		(5	)		--		--		341
Commercial nonmortgage		3		--			--		--		3
Consumer and other:
Loans on deposits		3		--			--		--		3
Home equity		13		(1	)		--		--		12
Automobile		--		--			--		--		--
Unsecured		1		(1	)		--		--		--
Unallocated		200		--			--		--		200
Totals	$	1,529	$	--		$	--	$	--	$	1,529

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2018:

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

Residential real estate:
One- to four-family	$	773	$	75		$	(139	)	$	48	$	757
Multi-family		243		(15	)		--			--		228
Construction		6		3			--			--		9
Land		4		(3	)		--			--		1
Farm		9		(1	)		--			--		8
Nonresidential real estate		270		56			--			--		326
Commercial nonmortgage		6		(2	)		--			--		4
Consumer and other:
Loans on deposits		4		(1	)		--			--		3
Home equity		17		(5	)		--			--		12
Automobile		--		--			--			--		--
Unsecured		1		--			--			--		1
Unallocated		200		--			--			--		200
Totals	$	1,533	$	107		$	(139	)	$	48	$	1,549

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2018:

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

Residential real estate:
One- to four-family	$	739	$	104		$	(90	)	$	4	$	757
Multi-family		244		(16	)		--			--		228
Construction		14		(5	)		--			--		9
Land		2		(1	)		--			--		1
Farm		10		(2	)		--			--		8
Nonresidential real estate		293		33			--			--		326
Commercial nonmortgage		6		(2	)		--			--		4
Consumer and other:
Loans on deposits		4		(1	)		--			--		3
Home equity		18		(6	)		--			--		12
Automobile		--		--			--			--		--
Unsecured		1		--			--			--		1
Unallocated		200		--			--			--		200
Totals	$	1,531	$	104		$	(90	)	$	4	$	1,549

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 March 31, 2019. The recorded investment in loans excludes accrued interest receivable due to immateriality.

March 31, 2019:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	4,822	$	932	$	5,754	$	--	$	--	$	--
Farm		310		--		310		--		--		--
Nonresidential real estate		675		--		675		--		--		--
		5,807		932		6,739		--		--		--

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	202,904	$	744	$	--	$	744
Multi-family						15,573		216		--		216
Construction						2,662		4		--		4
Land						678		1		--		1
Farm						2,242		5		--		5
Nonresidential real estate						30,337		341		--		341
Commercial nonmortgage						2,167		3		--		3
Consumer:
Loans on deposits						1,537		3		--		3
Home equity						7,920		12		--		12
Automobile						56		--		--		--
Unsecured						384		--		--		--
Unallocated						--		--		200		200
						266,460		1,329		200		1,529
					$	273,199	$	1,329	$	200	$	1,529

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.

June 30, 2018:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		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					$	202,793	$	795	$	--	$	795
Multi-family						15,113		225		--		225
Construction						2,919		8		--		8
Land						677		1		--		1
Farm						1,985		6		--		6
Nonresidential real estate						32,291		321		--		321
Commercial nonmortgage						1,917		3		--		3
Consumer:
Loans on deposits						1,470		3		--		3
Home equity						7,603		13		--		13
Automobile						63		--		--		--
Unsecured						508		1		--		1
Unallocated						--		--		200		200
						267,339		1,376		200		1,576
					$	271,886	$	1,376	$	200	$	1,576

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended March 31:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2019						2018
With no related allowance recorded:
One- to four-family	$	3,900	$	120	$	120	$	3,340	$	3	$	3
Farm		310		--		--		269		--		--
Nonresidential real estate		399		28		28		127		--		--
Purchased credit-impaired loans		1,035		45		45		1,490		42		42
		5,644		193		193		5,226		45		45
With an allowance recorded:
One- to four-family		--		--		--		--		--		--
	$	5,644	$	193	$	193	$	5,226	$	45	$	45

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

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2019						2018
With no related allowance recorded:
One- to four-family	$	4,577	$	45	$	45	$	2,919	$	--	$	--
Farm		310		--		--		538		--		--
Nonresidential real estate		686		14		14		124		--		--
Purchased credit-impaired loans		963		9		9		1,311		3		3
		6,536		68		68		4,892		3		3
With an allowance recorded:
One- to four-family		--		--		--		--		--		--
	$	6,536	$	68	$	68	$	4,892	$	3	$	3

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2019 and June 30, 2018:

	March 31, 2019				June 30, 2018
(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	$	4,559	$	1,308	$	4,210	$	2,419
Multifamily		692		--		--		--
Farm		310		--		310		--
Nonresidential real estate and land		693		--		708		--
Commercial and industrial		2		--		7		--
Consumer		315		--		11		--
	$	6,571	$	1,308	$	5,246	$	2,419

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 March 31, 2019 and June 30, 2018, the Company had $1.6 million and $1.7 million of loans classified as TDRs, respectively. Of the TDRs at March 31, 2019, approximately 34.5% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the nine months ended March 31, 2019, the Company had two loans restructured as TDRs. A secondary mortgage loan of $219,000 was renewed and an additional $30,000 was loaned to a borrower to finish construction of an 8-plex, because the construction project had experienced cost overruns. The Company carries the first mortgage on this project and both the primary and secondary loans are secured by the 8-plex and additional real estate collateral. The Company also refinanced an existing single-family mortgage loan and provided additional funds to a borrower attempting to consolidate his debt.

The Company had three TDRs during the nine months ended March 31, 2018. The Company had no allocated specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of March 31, 2019 or at June 30, 2018. The Company had no commitments to lend on loans classified as TDRs at March 31, 2019 or June 30, 2018.

The following table summarizes TDR loan modifications that occurred during the nine months ended March 31, 2019 and 2018, 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

Nine months ended March 31, 2019
Residential real estate:
Terms extended and additional funds advanced	$	324	$	--	$	324

Nine months ended March 31, 2018
Residential real estate:
Terms extended and additional funds advanced	$	325	$	--	$	325
Chapter 7 bankruptcy without reaffirmation		32		--		32

There were no TDR loan modifications during the three months ended March 31, 2019. The following table summarizes TDR loan modifications that occurred during the three months ended March 31, 2018, 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 March 31, 2018
Residential real estate:
Terms extended and additional funds advanced	$	32	$	--	$	32

No TDRs defaulted during the nine-month period ended March 31, 2019. Four TDRs with a carrying value of $136,000 defaulted during the nine-month period ended March 31, 2018. The properties were taken into REO and sold.

The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2019, 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	$	2,998	$	3,103	$	6,101	$	202,557	$	208,658
Multi-family		--		443		443		15,130		15,573
Construction		603		--		603		2,059		2,662
Land		--		--		--		678		678
Farm		--		--		--		2,552		2,552
Nonresidential real estate		1,061		260		1,321		29,691		31,012
Commercial non-mortgage		20		--		20		2,147		2,167
Consumer and other:
Loans on deposits		--		--		--		1,537		1,537
Home equity		92		5		97		7,823		7,920
Automobile		--		--		--		56		56
Unsecured		--		--		--		384		384
Total	$	4,774	$	3,811	$	8,585	$	264,614	$	273,199

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2018, 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	$	3,182	$	4,051	$	7,233	$	199,675	$	206,908
Multi-family		792		--		792		14,321		15,113
Construction		--		--		--		2,919		2,919
Land		--		--		--		677		677
Farm		--		--		--		2,295		2,295
Nonresidential real estate		--		269		269		32,144		32,413
Commercial nonmortgage		--		--		--		1,917		1,917
Consumer:
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	$	263,575	$	271,886

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 March 31, 2019, 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	$	--	$	939	$	8,861	$	--	$	198,858
Multi-family		14,881		--		692		--		--
Construction		2,662		--		--		--		--
Land		678		--		--		--		--
Farm		2,242		--		310		--		--
Nonresidential real estate		30,320		--		692		--		--
Commercial nonmortgage		2,165		--		2		--		--
Consumer:
Loans on deposits		1,537		--		--		--		--
Home equity		7,812		79		29		--		--
Automobile		56		--		--		--		--
Unsecured		379		--		5		--		--
	$	62,732	$	1,018	$	10,591	$	--	$	198,858

At June 30, 2018, 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	$	--	$	1,093	$	10,215	$	--	$	195,600
Multi-family		14,445		--		668		--		--
Construction		2,919		--		--		--		--
Land		677		--		--		--		--
Farm		1,985		--		310		--		--
Nonresidential real estate		31,700		--		713		--		--
Commercial nonmortgage		1,910		--		7		--		--
Consumer:
Loans on deposits		1,470		--		--		--		--
Home equity		7,603		--		--		--		--
Automobile		63		--		--		--		--
Unsecured		506		--		2		--		--
	$	63,278	$	1,093	$	11,915	$	--	$	195,600

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 $351,000 and $383,000 at March 31, 2019 and June 30, 2018, respectively, is as follows:

(in thousands)	March 31, 2019		June 30, 2018

One- to four-family residential real estate	$	932	$	1,138

Accretable yield, or income expected to be collected, is as follows

(in thousands)	Nine months ended March 31, 2019			Twelve months ended June 30, 2018

Balance at beginning of period	$	634		$	720
Accretion of income		(61	)		(86	)
Disposals, net of recoveries		--			--
Balance at end of period	$	573		$	634

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2018, nor for the nine-month period ended March 31, 2019. Neither were any allowance for loan losses reversed during those periods.