DISCLOSURES ABOUT THE CREDIT QUALITY OF LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Sep. 30, 2016

11. DISCLOSURES ABOUT THE CREDIT QUALITY OF LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)

The following tables illustrate certain disclosures required by ASC 310-10-50-11B(c), (g) and (h), the changes to the allowance for loan losses, for the three months ended September 30, 2016 (in thousands):

	Allowance for Credit Losses and Recorded Investment in Loans Receivable

					One- to		Multi-
	One- to Four-				Four-family		family Non-
	Family Owner-				Non-owner		owner		Non-						Commercial
	Occupied				Occupied		Occupied		Residential						and
	Mortgage		Consumer		Mortgage		Mortgage		Real estate		Construction		Land		Agricultural		Total
Allowance for Credit Losses:
Balance, July 1, 2016:	$	1,235	$	426	$	108	$	275	$	2,577	$	132	$	10	$	122	$	4,885
Charge offs		—		(36)		—		—		(425)		—		—		—		(461)
Recoveries		23		25		—		3		1		—		—		—		52
Provision (credit)		1		7		(37)		115		(89)		(4)		10		14		17
Ending Balance:	$	1,259	$	422	$	71	$	393	$	2,064	$	128	$	20	$	136	$	4,493

Balance, Individually Evaluated	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Balance, Collectively Evaluated	$	1,259	$	422	$	71	$	393	$	2,064	$	128	$	20	$	136	$	4,493

Financing receivables:
Ending balance	$	131,668	$	35,622	$	11,918	$	16,133	$	63,388	$	9,033	$	2,445	$	9,787	$	279,994

Ending Balance: individually evaluated for impairment	$	2,378	$	391	$	407	$	—	$	2,089	$	—	$	50	$	—	$	5,315

Ending Balance: collectively evaluated for impairment	$	124,355	$	32,790	$	11,344	$	16,133	$	61,189	$	9,033	$	2,395	$	9,780	$	267,019

Ending Balance: loans acquired at fair value	$	4,935	$	2,441	$	167	$	—	$	110	$	—	$	—	$	7	$	7,660

For the year ended June 30, 2016 (in thousands):

	Allowance for Credit Losses and Recorded Investment in Loans Receivable

	One- to Four-				One- to		Multi-
	Family				Four-family		family Non-
	Owner-				Non-owner		owner		Non-						Commercial
	Occupied				Occupied		Occupied		Residential						and
	Mortgage		Consumer		Mortgage		Mortgage		Real estate		Construction		Land		Agricultural		Total
Allowance for Credit Losses:
Beginning balance:	$	1,348	$	517	$	130	$	474	$	2,586	$	4	$	16	$	49	$	5,124
Charge offs		(135)		(157)		—		(192)		(561)		—		—		—		(1,045)
Recoveries		86		274		27		4		223		—		—		5		619
Provision (credit)		(64)		(208)		(49)		(11)		329		128		(6)		68		187
Ending Balance:	$	1,235	$	426	$	108	$	275	$	2,577	$	132	$	10	$	122	$	4,885

Balance, Individually Evaluated	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Balance, Collectively Evaluated	$	1,235	$	426	$	108	$	275	$	2,577	$	132	$	10	$	122	$	4,885

Financing receivables:
Ending Balance	$	130,883	$	35,018	$	12,160	$	16,032	$	58,981	$	8,555	$	2,151	$	10,442	$	274,222

Ending Balance: individually evaluated for impairment	$	2,535	$	398	$	408	$	—	$	1,787	$	—	$	88	$	—	$	5,216

Ending Balance: collectively evaluated for impairment	$	123,148	$	32,071	$	11,581	$	16,032	$	57,076	$	8,555	$	2,063	$	10,313	$	260,839

Ending Balance: loans acquired at fair value	$	5,200	$	2,549	$	171	$	—	$	118	$	—	$	—	$	129	$	8,167

Federal regulations require us to review and classify our assets on a regular basis. In addition, the OCC has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional 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 “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. If we classify an asset as substandard, doubtful or loss, we analyze that asset and may establish a specific allocation for the asset at that time.

The following tables illustrate certain disclosures required by ASC 310-10-50-29(b).

Credit Risk Profile by Internally Assigned Grade

At September 30, 2016

(in thousands)

	One- to				One- to
	Four-				Four-family		Multi-family
	Family				Non-owner		Non-owner		Non-						Commercial
	Owner-Occupied				Occupied		Occupied		Residential						and
	Mortgage		Consumer		Mortgage		Mortgage		Real estate		Construction		Land		Agricultural		Total
Grade:
Pass	$	126,323	$	34,503	$	6,844	$	14,030	$	52,617	$	6,789	$	1,453	$	8,964	$	251,523
Watch		2,401		577		4,257		2,103		6,585		2,244		52		823		19,042
Special mention		533		151		154		—		2,008		—		890		—		3,736
Substandard		2,411		391		663		—		2,178		—		50		—		5,693
Total:	$	131,668	$	35,622	$	11,918	$	16,133	$	63,388	$	9,033	$	2,445	$	9,787	$	279,994

Credit Risk Profile by Internally Assigned Grade

At June 30, 2016

(in thousands)

	One- to				One- to
	Four-				Four-family		Multi-family
	Family				Non-owner		Non-owner		Non-						Commercial
	Owner-Occupied				Occupied		Occupied		Residential						and
	Mortgage		Consumer		Mortgage		Mortgage		Real estate		Construction		Land		Agricultural		Total
Grade:
Pass	$	125,089	$	33,820	$	7,007	$	13,914	$	48,886	$	3,814	$	1,119	$	8,475	$	242,124
Watch		2,545		582		4,298		2,118		5,018		4,741		54		1,967		21,323
Special mention		681		218		160		—		3,201		—		890		—		5,150
Substandard		2,568		398		695		—		1,876		—		88		—		5,625
Total:	$	130,883	$	35,018	$	12,160	$	16,032	$	58,981	$	8,555	$	2,151	$	10,442	$	274,222

The following tables illustrate certain disclosures required by ASC 310-10-50-7A for gross loans.

Age Analysis of Past Due Loans Receivable

At September 30, 2016

(in thousands)

	30-59 days		60-89 days		Greater than		Total past		Total		Total loans
	past due		past due		90 days		due		current		receivable
One- to Four- Family Mortgage - Owner-Occupied	$	337	$	308	$	384	$	1,029	$	130,639	$	131,668
Consumer		124		1		23		148		35,474		35,622
One- to Four- Family Mortgage - Non-Owner Occupied		—		30		235		265		11,653		11,918
Multi-family Mortgage		—		—		—		—		16,133		16,133
Nonresidential Real Estate – commercial and office buildings		—		—		—		—		63,388		63,388
Construction		—		—		—		—		9,033		9,033
Land		—		—		39		39		2,406		2,445
Commercial and Agricultural		—		—		—		—		9,787		9,787
Total	$	461	$	339	$	681	$	1,481	$	278,513	$	279,994

Age Analysis of Past Due Loans Receivable

At June 30, 2016

(in thousands)

	30-59 days		60-89 days		Greater than		Total past		Total		Total loans
	past due		past due		90 days		due		current		receivable
One- to Four- Family Mortgage - Owner-Occupied	$	594	$	552	$	401	$	1,547	$	129,336	$	130,883
Consumer		109		49		23		181		34,837		35,018
One- to Four- Family Mortgage - Non-Owner-Occupied		95		30		235		360		11,800		12,160
Multi-family Mortgage		—		—		—		—		16,032		16,032
Nonresidential Real Estate – commercial and office buildings		—		—		—		—		58,981		58,981
Construction		—		—		—		—		8,555		8,555
Land		14		—		76		90		2,061		2,151
Commercial and Agricultural		—		—		—		—		10,442		10,442
Total	$	812	$	631	$	735	$	2,178	$	272,044	$	274,222

The following table illustrates certain disclosures required by ASC 310-10-50-15.

For the three months

ended September 30, 2016

Unpaid

Interest

Average

Recorded

principal

Specific

income

Recorded

investment

balance

allowance

recognized

investment

With a related allowance recorded:

One- to Four- Family Mortgage - Owner-Occupied

—

Consumer

—

One- to Four- Family Mortgage -Non-Owner Occupied

—

Multi-family Mortgage

—

Nonresidential Real Estate – commercial and office buildings

—

Construction

—

Land

—

Commercial and Agricultural

—

Total

—

							For the three months
							ended September 30, 2016
			Unpaid				Interest		Average
	Recorded		principal		Specific		income		Recorded
	investment		balance		allowance		recognized		investment
With no related allowance recorded:
One- to Four- Family Mortgage - Owner-Occupied	$	2,378	$	2,759	$	—	$	17	$	2,457
Consumer		391		720		—		1		395
One- to Four- Family Mortgage -Non-Owner Occupied		407		407		—		2		408
Multi-family Mortgage		—		920		—		—		—
Nonresidential Real Estate – commercial and office buildings		2,089		3,922		—		11		1,938
Construction		—		—		—		—		—
Land		50		58		—		—		69
Commercial and Agricultural		—		6		—		—		—
Total	$	5,315	$	8,792	$	—	$	31	$	5,267

Impaired Loans

							For the three months
							ended September 30, 2016
			Unpaid						Average
	Recorded		principal		Specific		Interest income		Recorded
	investment		balance		allowance		recognized		investment
Total:
One- to Four- Family Mortgage - Owner-Occupied	$	2,378	$	2,759	$	—	$	17	$	2,457
Consumer		391		720		—		1		395
One- to Four- Family Mortgage -Non-Owner Occupied		407		407		—		2		408
Multi-family Mortgage		—		920		—		—		—
Nonresidential Real Estate – commercial and office buildings		2,089		3,922		—		11		1,938
Construction		—		—		—		—		—
Land		50		58		—		—		69
Commercial and Agricultural		—		6		—		—		—
Total	$	5,315	$	8,792	$	—	$	31	$	5,267

Impaired Loans

							For the year
							ended June 30, 2016
			Unpaid				Interest		Average
	Recorded		principal		Specific		income		recorded
	investment		balance		allowance		recognized		investment
	(in thousands)
With an allowance recorded:
One- to Four- Family Mortgage - Owner-Occupied	$	—	$	—	$	—	$	—	$	—
Consumer		—		—		—		—		—
One- to Four- Family Mortgage - Non-Owner Occupied		—		—		—		—		—
Multi-family Mortgage		—		—		—		—		—
Nonresidential Real Estate – commercial and office buildings		—		—		—		—		496
Construction		—		—		—		—		—
Land		—		—		—		—		—
Commercial and Agricultural		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	496

Impaired Loans

							For the year ended
							June 30, 2016
			Unpaid						Average
	Recorded		principal		Specific		Interest income		recorded
	investment		balance		allowance		recognized		investment

	(in thousands)
Without an allowance recorded:
One- to Four- Family Mortgage - Owner-Occupied	$	2,535	$	2,973	$	—	$	17	$	2,886
Consumer		398		726		—		1		461
One- to Four- Family Mortgage - Non-Owner Occupied		408		408		—		3		647
Multi-family Mortgage		—		920		—		—		481
Nonresidential Real Estate – commercial and office buildings		1,787		3,195		—		11		3,293
Construction		—		—		—		—		—
Land		88		95		—		—		149
Commercial and Agricultural		—		7		—		—		—
Total	$	5,216	$	8,324	$	—	$	32	$	7,917

Impaired Loans

							For the year ended
							June 30, 2016
			Unpaid						Average
	Recorded		principal		Specific		Interest income		recorded
	investment		balance		allowance		recognized		investment

	(in thousands)
Total:
One- to Four- Family Mortgage - Owner-Occupied	$	2,535	$	2,973	$	—	$	17	$	2,886
Consumer		398		726		—		1		461
One- to Four- Family Mortgage - Non-Owner Occupied		408		408		—		3		647
Multi-family Mortgage		—		920		—		—		481
Nonresidential Real Estate – commercial and office buildings		1,787		3,195		—		11		3,789
Construction		—		—		—		—		—
Land		88		95		—		—		149
Commercial and Agricultural		—		7		—		—		—
Total	$	5,216	$	8,324	$	—	$	32	$	8,413

The Bank did not have any investments in subprime loans at September 30, 2016. Impaired loans at September 30, 2016 included troubled debt restructurings (“TDR”) with an aggregate principal balance of $3.3 million and a recorded investment of $3.3 million. See Note 12 for a discussion on TDRs.