Loans, Allowance for Loan Losses and Credit Quality

12 Months Ended

Jun. 30, 2015

Loans, Allowance for Loan Losses and Credit Quality

Loans, Allowance for Loan Losses and Credit Quality

3. Loans, Allowance for Loan Losses and Credit Quality

        The composition of the Company's loan portfolio is as follows on the dates indicated.

	June 30, 2015						June 30, 2014
	Originated		Purchased		Total		Originated		Purchased		Total
	(Dollars in thousands)
Residential real estate	$	106,275	$	2,068	$	108,343	$	116,972	$	3,687	$	120,659
Home equity		24,326		—		24,326		27,975		—		27,975
Commercial real estate		148,425		200,251		348,676		116,617		199,481		316,098
Commercial business		122,860		273		123,133		41,518		282		41,800
Consumer		7,659		—		7,659		9,884		—		9,884
Total loans	$	409,545	$	202,592	$	612,137	$	312,966	$	203,450	$	516,416

        Included in the originated loan portfolio is $11.0 million of loans originated through SBA National, which includes $8.3 million of commercial real estate and $2.7 million of commercial business.

        Loans pledged as collateral with the FHLB for outstanding borrowings and additional borrowing capacity totaled $131.3 million and $187.6 million at June 30, 2015 and 2014, respectively.

Past Due and Nonaccrual Loans

        The following is a summary of past due and non-accrual loans.

	June 30, 2015
	30 - 59 Days		60 - 89 Days		Past Due 90 Days or More-Still Accruing		Past Due 90 Days or More- Nonaccrual		Total Past Due		Total Current		Total Loans		Non- Accrual Loans
	(Dollars in thousands)
Originated portfolio:
Residential real estate	$	239	$	973	$	—	$	1,393	$	2,605	$	103,670	$	106,275	$	3,021
Home equity		9		—		—		11		20		24,306		24,326		11
Commercial real estate		300		—		—		704		1,004		147,421		148,425		994
Commercial business		—		—		—		2		2		122,858		122,860		2
Consumer		105		29		—		56		190		7,469		7,659		190
Total originated portfolio		653		1,002		—		2,166		3,821		405,724		409,545		4,218
Purchased portfolio:
Residential real estate		—		—		—		—		—		2,068		2,068		—
Commercial business		—		—		—		—		—		273		273		—
Commercial real estate		86		299		—		2,410		2,795		197,456		200,251		6,532
Total purchased portfolio		86		299		—		2,410		2,795		199,797		202,592		6,532
Total loans	$	739	$	1,301	$	—	$	4,576	$	6,616	$	605,521	$	612,137	$	10,750

	June 30, 2014
	30 - 59 Days		60 - 89 Days		Past Due 90 Days or More-Still Accruing		Past Due 90 Days or More- Nonaccrual		Total Past Due		Total Current		Total Loans		Non- Accrual Loans
	(Dollars in thousands)
Originated portfolio:
Residential real estate	$	222	$	728	$	—	$	1,573	$	2,523	$	114,449	$	116,972	$	1,743
Home equity		109		7		—		120		236		27,739		27,975		160
Commercial real estate		126		136		—		629		891		115,726		116,617		1,162
Commercial business		—		—		—		—		—		41,518		41,518		5
Consumer		188		24		—		49		261		9,623		9,884		139
Total originated portfolio		645		895		—		2,371		3,911		309,055		312,966		3,209
Purchased portfolio:
Residential real estate		—		—		—		—		—		3,687		3,687		—
Commercial business		—		—		—		—		—		282		282		—
Commercial real estate		—		—		—		1,995		1,995		197,486		199,481		4,116
Total purchased portfolio	$	—	$	—	$	—	$	1,995	$	1,995	$	201,455	$	203,450	$	4,116
Total loans	$	645	$	895	$	—	$	4,366	$	5,906	$	510,510	$	516,416	$	7,325

Allowance for Loan Losses and Impaired Loans

        Activity in the allowance for loan losses follows.

	Year ended June 30, 2015
	Residential Real Estate			Commercial Real Estate		Commercial Business			Consumer			Purchased		Unallocated		Total
	(Dollars in thousands)
Beginning balance	$	580		$	358	$	48		$	79		$	268	$	34	$	1,367
Provision		344			335		38			(37	)		15		22		717
Recoveries		24			1		34			21			—		—		80
Charge-offs		(207	)		—		(3	)		(28	)		—		—		(238	)
Ending balance	$	741		$	694	$	117		$	35		$	283	$	56	$	1,926

	Year ended June 30, 2014
	Residential Real Estate			Commercial Real Estate			Commercial Business			Consumer			Purchased		Unallocated			Total
	(Dollars in thousands)
Beginning balance	$	594		$	173		$	70		$	189		$	76	$	41		$	1,143
Provision		190			211			13			(66	)		190		(7	)		531
Recoveries		63			—			8			25			2		—			98
Charge-offs		(267	)		(26	)		(43	)		(69	)		—		—			(405	)
Ending balance	$	580		$	358		$	48		$	79		$	268	$	34		$	1,367

        The following table sets forth information regarding the allowance for loan losses by portfolio segment and impairment methodology.

	June 30, 2015
	Residential Real Estate		Commercial Real Estate		Commercial Business		Consumer		Purchased		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Individually evaluated	$	435	$	21	$	—	$	—	$	—	$	—	$	456
Collectively evaluated		306		673		117		35		—		56		1,187
ASC 310-30		—		—		—		—		283		—		283
Total	$	741	$	694	$	117	$	35	$	283	$	56	$	1,926
Loans:
Individually evaluated	$	4,095	$	2,381	$	2	$	253	$	—	$	—	$	6,731
Collectively evaluated		126,506		146,044		122,858		7,406		—		—		402,814
ASC 310-30		—		—		—		—		202,592		—		202,592
Total	$	130,601	$	148,425	$	122,860	$	7,659	$	202,592	$	—	$	612,137

	June 30, 2014
	Residential Real Estate		Commercial Real Estate		Commercial Business		Consumer		Purchased		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Individually evaluated	$	190	$	84	$	—	$	6	$	—	$	—	$	280
Collectively evaluated		390		274		48		73		—		34		820
ASC 310-30		—		—		—		—		268		—		267
Total	$	580	$	358	$	48	$	79	$	268	$	34	$	1,367
Loans:
Individually evaluated	$	2,314	$	2,549	$	—	$	240	$	—	$	—	$	5,103
Collectively evaluated		142,633		114,068		41,518		9,644		—		—		307,863
ASC 310-30		—		—		—		—		203,450		—		203,450
Total	$	144,947	$	116,617	$	41,518	$	9,884	$	203,450	$	—	$	516,416

        Included in the loans collectively evaluated for the allowance for loan losses for the year ending June 30, 2015 are the SBA National and SBA community bank loans, which are assigned a loss rate on the unguaranteed portion of the loan. Included is an allowance of $282 thousand on a loan portfolio of $17.4 million, which includes the unguaranteed portion of the SBA National loans, as well as the SBA community bank loans.

        The following table sets forth information regarding impaired loans. Loans accounted for under ASC 310-30 that have performed based on cash flow and accretable yield expectations determined at date of acquisition are not considered impaired assets and have been excluded from the tables below.

	At June 30, 2015						For the Year Ended June 30, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)						(Dollars in thousands)
Impaired loans without a valuation allowance:
Originated:
Residential real estate	$	1,975	$	2,076	$	—	$	1,490	$	92
Consumer		253		262		—		226		80
Commercial real estate		1,505		1,510		—		1,436		71
Commercial business		2		2		—		1		1
Purchased:										—
Commercial real estate		7,673		9,606		—		5,265		249
Total		11,408		13,456		—		8,418		493
Impaired loans with a valuation allowance:
Originated:
Residential real estate		2,120		2,060		435		1,715		87
Consumer		—		—		—		20		17
Commercial real estate		876		870		21		1,029		59
Commercial business		—		—		—		—		—
Purchased:
Commercial real estate		1,208		1,644		260		1,549		41
Total		4,204		4,574		716		4,313		204
Total impaired loans	$	15,612	$	18,030	$	716	$	12,731	$	697

	At June 30, 2014						For the Year Ended June 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)						(Dollars in thousands)
Impaired loans without a valuation allowance:
Originated:
Residential real estate	$	1,005	$	1,081	$	—	$	1,038	$	41
Consumer		200		205		—		132		8
Commercial real estate		1,368		1,371		—		782		40
Commercial business		—		—		—		51		8
Purchased:
Commercial real estate		2,857		4,148		—		2,639		89
Total		5,430		6,805		—		4,642		186
Impaired loans with a valuation allowance:
Originated:
Residential real estate		1,309		1,278		190		1,323		65
Consumer		40		47		6		75		5
Commercial real estate		1,181		1,187		84		1,131		78
Commercial business		—		—		—		30		1
Purchased:
Commercial real estate		1,890		2,215		166		1,228		76
Total		4,420		4,727		446		3,787		225
Total impaired loans	$	9,850	$	11,532	$	446	$	8,429	$	411

Credit Quality

        The Company utilizes a ten-point internal loan rating system for commercial real estate, construction, commercial business, and certain residential loans as follows:

        Loans rated 1-6: Loans in these categories are considered "pass" rated loans. Loans in categories 1-5 are considered to have low to average risk. Loans rated 6 are considered marginally acceptable business credits and have more than average risk.

        Loans rated 7: Loans in this category are considered "special mention." These loans show signs of potential weakness and are being closely monitored by management.

        Loans rated 8: Loans in this category are considered "substandard." Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt.

        Loans rated 9: Loans in this category are considered "doubtful." Loans classified as doubtful have all the weaknesses inherent in one graded 8 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 rated 10: Loans in this category are considered "loss" and of such little value that their continuance as loans is not warranted.

        On an annual basis, or more often if needed, the Company formally reviews the ratings of all loans subject to risk ratings. Semi-annually, the Company engages an independent third-party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. Risk ratings on purchased loans, with and without evidence of credit deterioration at acquisition, are determined relative to the Company's recorded investment in that loan, which may be significantly lower than the loan's unpaid principal balance.

        The following tables present the Company's loans by risk rating.

	June 30, 2015
	Originated Portfolio
	Commercial Real Estate		Commercial Business		Residential(1)		Purchased Portfolio		Total
	(Dollars in thousands)
Loans rated 1 - 6	$	142,321	$	122,829	$	8,049	$	190,193	$	463,392
Loans rated 7		4,417		31		634		5,628		10,710
Loans rated 8		1,687		—		429		6,771		8,887
Loans rated 9		—		—		23		—		23
Loans rated 10		—		—		—		—		—
	$	148,425	$	122,860	$	9,135	$	202,592	$	483,012

	June 30, 2014
	Originated Portfolio
	Commercial Real Estate		Commercial Business		Residential(1)		Purchased Portfolio		Total
	(Dollars in thousands)
Loans rated 1 - 6	$	110,044	$	41,271	$	11,941	$	189,986	$	353,242
Loans rated 7		4,880		46		940		8,619		14,485
Loans rated 8		1,693		201		670		4,845		7,409
Loans rated 9		—		—		—		—		—
Loans rated 10		—		—		—		—		—
	$	116,617	$	41,518	$	13,551	$	203,450	$	375,136

(1)           Certain of the Company's loans made for commercial purposes, but secured by residential collateral, are rated under the Company's risk-rating system.

Troubled Debt Restructurings

        The following table shows the Company's post-modification balance of TDRs by type of modification.

	Year Ended June 30,
	2015				2014
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in thousands)
Extended maturity		7	$	1,934		5	$	2,082
Adjusted interest rate		9		430		2		118
Rate and maturity		6		211		6		306
Principal deferment		1		443		2		341
Court ordered concession		4		84		2		50
Other		—		—		2		171
		27	$	3,102		19	$	3,068

        The following table shows loans modified in a TDR and the change in the recorded investment subsequent to the modifications.

	Year Ended June 30,
	2015						2014
	Number of Contracts		Recorded Investment Pre-Modification		Recorded Investment Post-Modification		Number of Contracts		Recorded Investment Pre-Modification		Recorded Investment Post-Modification
	(Dollars in thousands)
Originated portfolio:
Residential real estate		17	$	1,223	$	1,223		4	$	164	$	164
Home equity		—		—		—		2		22		22
Commercial real estate		1		200		200		5		691		691
Commercial business		—		—		—		1		18		18
Consumer		6		51		51		4		144		144
Total originated portfolio		24		1,474		1,474		16		1,039		1,039
Purchased portfolio:
Commercial real estate		3		1,628		1,628		3		1,990		2,029
Total purchased portfolio		3		1,628		1,628		3		1,990		2,029
Total		27	$	3,102	$	3,102		19	$	3,029	$	3,068

        As of June 30, 2015, there were no further commitments to lend associated with loans modified in a TDR.

        The following table shows the loans that have been modified during the past twelve months which have subsequently defaulted during the periods indicated. The Company considers a loan to have defaulted when it reaches 90 days past due.

	Year Ended June 30,
	2015				2014
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in thousands)
Residential		3	$	100		3	$	163
Consumer		—		—		1		10
		3	$	100		4	$	173

ASC 310-30 Loans

        The following table presents a summary of loans accounted for under ASC 310-30 that were acquired by the Company during the year ended June 30, 2015.

	June 30, 2015			June 30, 2014
	(Dollars in thousands)
Contractually required payments receivable	$	128,452		$	116,786
Nonaccretable difference		(2,042	)		(1,564	)
Cash flows expected to be collected		126,410			115,222
Accretable yield		(43,756	)		(35,399	)
Fair value of loans acquired	$	82,654		$	79,823

        Certain of the loans accounted for under ASC 310-30 that were acquired by the Company are not accounted for using the income recognition model because the Company cannot reasonably estimate cash flows expected to be collected. The carrying amounts of such loans are as follows:

	June 30, 2015
	(Dollars in thousands)
Loans acquired during the period	$	357
Loans at end of period		6,127

        For the year ended June 30, 2014, no loans acquired by the Company were not accounted for using the income recognition model.

        The following table summarizes the activity in the accretable yield for loans accounted for under ASC 310-30.

	June 30, 2015			June 30, 2014
	(Dollars in thousands)
Beginning balance	$	109,040		$	108,251
Acquisitions		43,756			35,399
Accretion		(16,886	)		(15,433	)
Reclassifications from nonaccretable difference, net		157			791
Disposals and other changes		(24,618	)		(19,968	)
End balance	$	111,449		$	109,040

        The following table provides information related to the unpaid principal balance and carrying amounts of ASC 310-30 loans.

	June 30, 2015		June 30, 2014
	(Dollars in thousands)
Unpaid principal balance	$	235,716	$	239,376
Carrying amount		199,113		201,171