4.NET LOANS RECEIVABLE

A summary of net loans receivable is as follows (dollars in thousands):


	March 31, 2020		June 30, 2019
Commercial:
Real estate	$	458,633	$	414,375
Commercial and industrial		175,490		183,262
Construction		88,132		85,274
Total commercial		722,255		682,911
Residential mortgages		285,834		281,388
Home equity loans and lines		81,405		80,258
Consumer		30,563		21,482
		1,120,057		1,066,039
Net deferred loan costs		2,640		2,398
Allowance for loan losses		(20,700)		(14,499)
Net loans receivable	$	1,101,997	$	1,053,938

The following tables present the activity in the allowance for loan losses by portfolio segment (dollars in thousands):


	For the Three Months Ended March 31, 2020
			Residential
	Commercial		Mortgages			Home Equity	Consumer		Total
Allowance for loan losses at beginning of period	$	12,760	$	2,452	$	868	$	413	$	16,493
Provisions charged to operations		1,411		813		205		121		2,550
Loans charged off		—		—		—		(64)		(64)
Recoveries on loans charged off (1)		1,707		—		—		14		1,721
Allowance for loan losses at end of period	$	15,878	$	3,265	$	1,073	$	484	$	20,700

(1)

The three months ended March 31, 2020 included a partial recovery in the amount of $1.7 million related to the charge-off of the entire principal balance owed to the Bank related to a business customer and various affiliated entities (collectively, the “Mann Entities”) commercial loan relationships in the first fiscal quarter of 2020.


	For the Three Months Ended March 31, 2019
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for loan losses at beginning of period	$	10,062	$	2,459	$	800	$	279	$	13,600
Provisions charged to operations		486		38		—		46		570
Loans charged off		—		(56)		—		(62)		(118)
Recoveries on loans charged off		—		—		—		17		17
Allowance for loan losses at end of period	$	10,548	$	2,441	$	800	$	280	$	14,069


	For the Nine Months Ended March 31, 2020
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for loan losses at beginning of period	$	11,057	$	2,360	$	813	$	269	$	14,499
Provisions charged to operations (1)		18,919		924		259		338		20,440
Loans charged off (1)		(15,805)		(19)		—		(153)		(15,977)
Recoveries on loans charged off (1)		1,707		—		1		30		1,738
Allowance for loan losses at end of period	$	15,878	$	3,265	$	1,073	$	484	$	20,700

(1)

The nine months ended March 31, 2020 included a provision for loan losses in the amount of $15.8 million related to the charge-off of the entire principal balance owed to the Bank related to the Mann Entities commercial loan relationships which were recognized in the first fiscal quarter of 2020. The nine months ended March 31, 2020 also included a partial recovery in the amount of $1.7 million related to the charge-off of the Mann Entities commercial loan relationships which was recognized in the third fiscal quarter of 2020.


	For the Nine Months Ended March 31, 2019
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for loan losses at beginning of period	$	10,414	$	2,166	$	770	$	160	$	13,510
Provisions charged to operations		1,180		331		30		239		1,780
Loans charged off		(1,046)		(56)		—		(151)		(1,253)
Recoveries on loans charged off		—		—		—		32		32
Allowance for loan losses at end of period	$	10,548	$	2,441	$	800	$	280	$	14,069

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method (dollars in thousands):


	March 31, 2020
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for loan losses:
Related to loans individually evaluated for impairment	$	533	$	—	$	—	$	—	$	533
Related to loans collectively evaluated for impairment		15,345		3,265		1,073		484		20,167
Ending balance	$	15,878	$	3,265	$	1,073	$	484	$	20,700

Loans:
Individually evaluated for impairment	$	6,622	$	—	$	—	$	—	$	6,622
Loans collectively evaluated for impairment		715,633		285,834		81,405		30,563		1,113,435
Ending balance	$	722,255	$	285,834	$	81,405	$	30,563	$	1,120,057


	June 30, 2019
			Residential
	Commercial		Mortgages			Home Equity	Consumer		Total
Allowance for loan losses:
Related to loans individually evaluated for impairment	$	426	$	—	$	—	$	—	$	426
Related to loans collectively evaluated for impairment		10,631		2,360		813		269		14,073
Ending balance	$	11,057	$	2,360	$	813	$	269	$	14,499

Loans:
Individually evaluated for impairment	$	8,067	$	—	$	—	$	—	$	8,067
Loans collectively evaluated for impairment		674,844		281,388		80,258		21,482		1,057,972
Ending balance	$	682,911	$	281,388	$	80,258	$	21,482	$	1,066,039

The following tables present information related to impaired loans by class as of (dollars in thousands):


							For the Nine Months Ended
	March 31, 2020						March 31, 2020
	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With no related allowance recorded:
Commercial:
Real estate	$	2,390	$	2,390	$	—	$	2,360	$	231
Commercial and industrial		46		42		—		46		—
Construction		1,298		1,298		—		1,324		—
Subtotal		3,734		3,730		—		3,730		231
With an allowance recorded:
Commercial:
Real estate		1,523		1,463		30		1,584		—
Commercial and industrial		1,437		1,429		503		1,463		69
Subtotal		2,960		2,892		533		3,047		69
Total	$	6,694	$	6,622	$	533	$	6,777	$	300


							For the Year Ended
	June 30, 2019						June 30, 2019
	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With no related allowance recorded:
Commercial:
Real estate	$	5,593	$	5,376	$	—	$	5,608	$	—
Commercial and industrial		59		48		—		59		—
Construction		1,377		1,377		—		1,106		—
Subtotal		7,029		6,801		—		6,773		—

With an allowance recorded:
Commercial:
Real estate		—		—		—		—		—
Commercial and industrial		1,266		1,266		426		1,293		95
Subtotal		1,266		1,266		426		1,293		95
Total	$	8,295	$	8,067	$	426	$	8,066	$	95

Interest income on nonaccrual loans is recognized using the cost recovery method. Interest income on impaired loans that were on nonaccrual status and cash-basis interest income for the three and nine months ended March 31, 2020, and the year ended June 30, 2019 was nominal.

The recorded investment in loans excludes accrued interest receivable and deferred loan fees, net due to immateriality.

At various times, certain loan modifications are executed which are considered to be troubled debt restructurings. Substantially all of these modifications include one or a combination of the following: extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; temporary reduction in the interest rate; change in scheduled payment amount including interest only; or extensions of additional credit for payment of delinquent real estate taxes or other costs.

During the quarter ended March 31, 2020, the Company implemented customer payment deferral programs to assist both consumer and commercial borrowers that may be experiencing financial hardship due to COVID-19 related challenges, whereby short-term deferrals of payments (generally three to six months) will be provided. Commercial, residential mortgage, home equity loans and lines, and consumer loans in deferment status will continue to accrue interest on the deferred principal during the deferment period unless otherwise classified as nonaccrual. Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral period and therefore, not classified as troubled-debt restructured loans. Borrowers that are delinquent in their payments prior to requesting a COVID-19 related financial hardship payment deferral will be reviewed on a case by case basis for troubled debt restructure classification and non-performing loan status.

There were no loans modified as troubled debt restructurings during the three and nine months ended March 31, 2020, and 2019, respectively. There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to March 31, 2020 and 2019 which have subsequently defaulted during the three and nine months ended March 31, 2020 and 2019, respectively.

Loans subject to a troubled debt restructuring are evaluated as impaired loans for the purpose of determining the specific component of allowance for loan losses.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans (dollars in thousands):


	March 31,				June 30,
	2020				2019
			Past Due				Past Due
			90 Days				90 Days
			Still on				Still on
	Nonaccrual		Accrual		Nonaccrual		Accrual
Commercial:
Real estate	$	3,369	$	56	$	5,618	$	58
Commercial and industrial		42		5		42		—
Construction		1,298		—		1,377		—
Residential mortgages		4,191		—		4,028		—
Home equity loans and lines		1,511		54		1,497		41
Consumer		210		10		—		19
	$	10,621	$	125	$	12,562	$	118

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans.

The following tables present the aging of the recorded investment in loans by class of loans as of (dollars in thousands):


	March 31, 2020
	30 - 59		60 - 89		90 or more
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial:
Real estate	$	5,798	$	—	$	2,189	$	7,987	$	450,646	$	458,633
Commercial and industrial		4,223		—		47		4,270		171,220		175,490
Construction		6,609		—		1,298		7,907		80,225		88,132
Residential mortgages		685		672		2,583		3,940		281,894		285,834
Home equity loans and lines		270		192		1,201		1,663		79,742		81,405
Consumer		3		—		10		13		30,550		30,563
Total	$	17,588	$	864	$	7,328	$	25,780	$	1,094,277	$	1,120,057


	June 30, 2019
	30 - 59		60 - 89		90 or more
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial:
Real estate	$	3	$	—	$	5,490	$	5,493	$	408,882	$	414,375
Commercial and industrial		—		—		42		42		183,220		183,262
Construction		—		—		1,377		1,377		83,897		85,274
Residential mortgages		156		217		2,699		3,072		278,316		281,388
Home equity loans and lines		476		318		988		1,782		78,476		80,258
Consumer		5		—		19		24		21,458		21,482
Total	$	640	$	535	$	10,615	$	11,790	$	1,054,249	$	1,066,039

The Company categorizes commercial 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 commercial loans individually by classifying the loans as to credit risk. 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.

Commercial loans not meeting the criteria above are considered to be pass rated loans.

The following tables present commercial loans summarized by class of loans and the risk category (dollars in thousands):


	March 31, 2020
			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial
Real estate	$	447,313	$	484	$	10,836	$	—	$	458,633
Commercial and industrial		161,059		6,583		7,848		—		175,490
Construction		86,216		—		1,916		—		88,132
	$	694,588	$	7,067	$	20,600	$	—	$	722,255


	June 30, 2019
			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial
Real estate	$	406,317	$	2,440	$	5,618	$	—	$	414,375
Commercial and industrial		179,099		226		3,937		—		183,262
Construction		83,897		—		1,377		—		85,274
	$	669,313	$	2,666	$	10,932	$	—	$	682,911

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

As of March 31, 2020 and June 30, 2019, the Company had pledged $474.6 million and $485.6 million respectively, of residential mortgage, home equity and commercial loans as collateral for FHLBNY borrowings and stand-by letters of credit.