f10q_093014-5468.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________

FORM 10-Q
(Mark One)
     
X
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   
EXCHANGE ACT OF 1934
     
For the quarterly period ended
September 30, 2014
     
OR
     
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   
EXCHANGE ACT OF 1934
     
For the transition period from
 
to
     
     
Commission File Number  001-33246
     
MSB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
     
     
UNITED STATES
 
34-1981437
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification Number)
     
1902 Long Hill Road, Millington, New Jersey
 
07946-0417
(Address of principal executive offices)
 
(Zip Code)
     
Registrant’s telephone number, including area code
(908) 647-4000
     
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]  No [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [  ]
Smaller reporting company [X]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [  ] No  [X]
 
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: October 30, 2014:
     
$0.10 par value common stock 5,010,437 shares outstanding
 
 
 

 


MSB FINANCIAL CORP. AND SUBSIDIARIES

INDEX

   
Page
   
Number
PART I - FINANCIAL INFORMATION
   
     
Item 1:
Consolidated Financial Statements (Unaudited)
 
 
       
 
    Consolidated Statements of Financial Condition
   
 
    at September 30, 2014 and June 30, 2014
 
2
       
 
    Consolidated Statements of Comprehensive Income for the
   
 
    Three Months Ended September 30, 2014 and 2013
 
3
       
 
    Consolidated Statements of Cash Flows for the Three Months
   
 
    Ended September 30, 2014 and 2013
 
5
       
 
Notes to Consolidated Financial Statements (Unaudited)
 
6
       
Item 2:
Management’s Discussion and Analysis of
 
32
 
Financial Condition and Results of Operations
   
       
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
 
37
       
Item 4:
Controls and Procedures
 
37
     
     
PART II - OTHER INFORMATION
   
     
Item 1:
Legal Proceedings
 
37
       
Item 1A:
Risk Factors
 
37
       
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
 
38
       
Item 3:
Defaults Upon Senior Securities
 
38
       
Item 4:
Mine Safety Disclosures
 
38
       
Item 5:
Other Information
 
38
       
Item 6:
Exhibits
 
38
     
SIGNATURES
 
39
     
CERTIFICATIONS
   




 
 

 

ITEM 1 – CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MSB FINANCIAL CORP AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

    
September 30,
   
June 30,
 
   
2014
   
2014
 
   
(Dollars in thousands,
except per share amount)
 
                 
Cash and due from banks
 
$
7,698
   
$
6,432
 
Interest-earning demand deposits with banks
   
1,266
     
876
 
                 
Cash and Cash Equivalents
   
8,964
     
7,308
 
                 
Securities held to maturity (fair value of $79,586 and $83,636, respectively)
   
81,099
     
84,932
 
Loans receivable, net of allowance for loan losses of $3,532 and $3,686, respectively
   
232,688
     
230,275
 
Other real estate owned
   
1,034
     
409
 
Premises and equipment
   
8,409
     
8,486
 
Federal Home Loan Bank of New York stock, at cost
   
1,800
     
2,190
 
Bank owned life insurance
   
7,191
     
7,136
 
Accrued interest receivable
   
1,194
     
1,318
 
Other assets
   
3,112
     
3,192
 
                 
Total Assets
 
$
345,491
   
$
345,246
 
                 
Liabilities and Stockholders’ Equity
               
Liabilities
               
Deposits:
               
Non-interest bearing
 
$
28,018
   
$
22,206
 
Interest bearing
   
241,245
     
241,183
 
                 
Total Deposits
   
269,263
     
263,389
 
                 
Advances from Federal Home Loan Bank of New York
   
32,000
     
38,000
 
Advance payments by borrowers for taxes and insurance
   
453
     
494
 
Other liabilities
   
2,659
     
2,553
 
                 
Total Liabilities
   
304,375
     
304,436
 
                 
Commitments and Contingencies
   
     
 
Stockholders’ Equity
               
Common stock, par value $0.10; 10,000,000 shares authorized; 5,620,625 issued; 5,010,437 outstanding
   
562
     
562
 
Paid-in capital
   
24,654
     
24,616
 
Retained earnings
   
21,897
     
21,670
 
Unallocated common stock held by ESOP (71,663 and 75,878 shares, respectively)
   
(717
)
   
(759
)
Treasury stock, at cost, 610,188 shares
   
(5,244
)
   
(5,244
)
Accumulated other comprehensive loss
   
(36
)
   
(35
)
                 
Total Stockholders’ Equity
   
41,116
     
40,810
 
                 
Total Liabilities and Stockholders’ Equity
 
$
345,491
   
$
345,246
 

See notes to unaudited consolidated financial statements.
 
 
2

 

MSB FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

    
Three Months Ended
 
   
September 30,
 
   
2014
   
2013
 
   
(In thousands, except
 
   
per share Amounts)
 
Interest Income:
           
  Loans receivable, including fees
  $ 2,512     $ 2,488  
  Securities held to maturity
    452       452  
  Other
    23       25  
Total Interest Income
    2,987       2,965  
                 
Interest Expense
               
  Deposits
    395       445  
  Borrowings
    196       187  
                 
        Total Interest Expense
    591       632  
                 
Net Interest Income
    2,396       2,333  
                 
Provision for Loan Losses
    100       150  
 
               
Net Interest Income after Provision for Loan Losses
    2,296       2,183  
                 
Non-Interest Income
               
  Fees and service charges
    86       98  
  Income from bank owned life insurance
    55       56  
  Other
    21       27  
Total Non-Interest Income
    162       181  
                 
Non-Interest Expenses
               
  Salaries and employee benefits
    1,011       962  
  Directors compensation
    127       112  
  Occupancy and equipment
    339       331  
  Service bureau fees
    115       160  
  Advertising
    31       37  
  FDIC assessment
    72       119  
  Professional services
    195       148  
  Other
    226       118  
Total Non-Interest Expenses
    2,116       1,987  
                 
Income before Income Taxes
    342       377  
Income Tax Expense
    115       129  
Net Income
  $ 227     $ 248  
                 
Weighted average number of shares of common stock
               
  Outstanding basic and diluted
    4,937       4,920  
Earnings per share - basic and diluted
  $ 0.05     $ 0.05  

See notes to unaudited consolidated financial statements.
 
 
3

 


Consolidated Statements of Comprehensive Income – (Continued)

    
Three Months Ended September 30,
 
   
2014
   
2013
 
   
(In thousands, except
per share amounts)
 
Other comprehensive loss, net of tax
               
                 
Defined benefit pension plans:
               
                 
Reclassification adjustment for prior service cost included in net
income, net of tax of $- and $-, respectively
 
$
-
   
$
1
 
                 
Reclassification adjustment for net actuarial gain included in net
income, net of tax of ($1) and ($1), respectively
   
(1
)
   
(2
)
                 
Total Other comprehensive loss
   
(1
)
   
(1
)
                 
    Comprehensive income
 
$
226
   
$
247
 

See notes to unaudited consolidated financial statements.
 
 
4

 
MSB Financial Corp and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 
   
Three Months Ended
September 30,
 
   
2014
   
2013
 
   
(In thousands)
 
Cash Flows from Operating Activities:
           
  Net Income
  $ 227     $ 248  
  Adjustments to reconcile net income to net
               
   cash provided by operating activities:
               
   Net (accretion) amortization of securities discounts and deferred loan fees and costs
    (2 )     4  
   Depreciation and amortization of premises and equipment
    120       129  
   Stock based compensation and allocation of ESOP stock
    80       76  
   Provision for loan losses
    100       150  
   Gain on sale of other real estate owned
    -       (123 )
   Income from bank owned life insurance
    (55 )     (56 )
   Decrease in accrued interest receivable
    124       38  
   Decrease (increase) in other assets
    81       (319 )
   Increase in other liabilities
    104       145  
  Net Cash Provided by Operating Activities
    779       292  
 
               
Cash Flows from Investing Activities:
               
   Activity in held to maturity securities:
               
     Purchases
    -       (8,379 )
     Maturities, calls and principal repayments
    3,809       418  
   Net increase in loans receivable
    (3,100 )     (3,224 )
   Purchase of premises and equipment
    (43 )     (29 )
   Redemption of Federal Home Loan Bank of NY stock
    390       -  
   Capitalized improvements of other real estate owned
    (12 )     (5 )
   Proceeds from sale of other real estate owned
    -       1,178  
  Net Cash Provided by (Used) in Investing Activities
    1,044       (10,041 )
 
               
Cash Flows from Financing Activities:
               
   Net increase (decrease) in deposits
    5,874       (6,477 )
   Repayment of advance from FHLB of NY
    (6,000 )     -  
   (Decrease) increase in advance payments by borrowers for taxes and insurance
    (41 )     184  
  Net Cash Used in Financing Activities
    (167 )     (6,293 )
                 
  Net Increase (Decrease) in Cash and Cash Equivalents
    1,656       (16,042 )
Cash and Cash Equivalents – Beginning
    7,308       24,755  
Cash and Cash Equivalents – Ending
  $ 8,964     $ 8,713  
                 
Supplementary Cash Flows Information
               
  Interest paid
  $ 583     $ 635  
  Loan receivable transferred to other real estate owned
  $ 613     $ 773  
 
See notes to unaudited consolidated financial statements.

 
5

 

MSB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 – Organization and Business

MSB Financial Corp. (the “Company”) is a federally-chartered corporation organized in 2004 for the purpose of acquiring all of the capital stock that Millington Bank (the “Bank”) issued in its mutual holding company reorganization. The Company’s principal business is the ownership and operation of the Bank.
 
MSB Financial, MHC (the “MHC”) is a federally-chartered mutual holding company that was formed in 2004 in connection with the mutual holding company reorganization of the Bank. The MHC has not engaged in any significant business other than its ownership interest in the Company since its formation. So long as the MHC is in existence, it will at all times own a majority of the outstanding stock of the Company. At September 30, 2014, the MHC owned 61.7% of the Company’s outstanding common shares.
 
The Bank is a New Jersey chartered stock bank and its deposits are insured by the Federal Deposit Insurance Corporation. The primary business of the Bank is attracting retail deposits from the general public and using those deposits together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for its lending and investing activities. The Bank’s loan portfolio primarily consists of one-to-four family and home equity residential loans, commercial loans, and construction loans. It also invests in U.S. government obligations and mortgage-backed securities. The Bank is regulated by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System (the “Federal Reserve”) regulates the MHC and the Company as savings and loan holding companies.
 
The primary business of Millington Savings Service Corp (the “Service Corp”) was the ownership and operation of a single commercial rental property. This property was sold during the year ended June 30, 2007. Currently the Service Corp is inactive.

Note 2 – Basis of Consolidated Financial Statement Presentation

              The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly owned subsidiary the Service Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.  These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X, and therefore, do not include all information or notes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
 
In the opinion of management, all adjustments, consisting of only normal recurring adjustments or accruals, which are necessary for a fair presentation of the consolidated financial statements have been made at September 30, 2014 and for the three months ended September 30, 2014 and 2013.  The results of operations for the three months ended September 30, 2014 are not necessarily indicative of the results which may be expected for an entire fiscal year or other interim periods.

 
6

 
 
The data in the consolidated statement of financial condition for June 30, 2014 was derived from the Company’s audited consolidated financial statements as of and for the year then ended. That data, along with the interim financial information presented in the consolidated statements of financial condition, comprehensive income, and cash flows should be read in conjunction with the audited consolidated financial statements as of and for the year ended June 30, 2014, including the notes thereto included in the Company’s Annual Report on Form 10-K.
 
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
 
              A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses all available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the Bank’s market area.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations.
 
Note 3 – Subsequent Events

In accordance with Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (the “ASC”) Topic 855, Subsequent Events, management has evaluated potential subsequent events through the date of these consolidated financial statements were issued.

In October 2014, the Company was made aware that a fraudulent cashiers’ check had been deposited into the account of a customer with the proceeds having been withdrawn by wire transfer before the fraud was discovered.  An investigation of the situation and the potential recovery of losses are in their early stages. While we believe this was an isolated incident, no other conclusions have been reached concerning the responsibility by any party for any potential losses, nor has there been a determination of whether or not existing insurance policies of any party will cover all or part of any such losses. Should there be no additional recoveries, including from insurance or other funds on deposit, and the Company were to absorb all the known losses associated with this activity (excluding the costs of investigation), it would incur an after-tax expense of approximately $263,000.

Note 4 – Earnings Per Share

Basic earnings per share is computed by dividing net income  by the weighted average number of common shares outstanding during the period, exclusive of the unallocated shares held by the Employee Stock Ownership Plan (“ESOP”) and unvested shares of restricted stock. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted earnings per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method.  Diluted earnings per share did not differ from basic earnings per share for the three months ended September 30, 2014 and 2013, as the 275,410 weighted average number of outstanding stock options were all anti-dilutive.
 
 
7

 
Note 5 – Stock Based Compensation

On March 10, 2008, the Company’s stockholders approved the 2008 Stock Compensation and Incentive Plan. This plan permits the granting of up to 275,410 options to purchase Company common stock. Pursuant to this plan, on May 9, 2008, the Board of Directors granted 275,410 options having an exercise price of $10.75 per share, the fair market value of the shares at the grant date. The grant date fair value of the options was estimated to be $2.99 per share based on the Black-Scholes option pricing model. Options are exercisable for 10 years from date of grant.  As of June 30, 2014 and 2013 all stock based compensation expense related to these awards had been recognized.

On November 9, 2009 the Company’s the 2008 Plan was amended.  The primary purpose of the amendment was to increase the number of shares of Company common stock authorized for issuance under the 2008 Plan from 275,410 to 385,574; with such additional shares to be available for awards in the form of restricted stock awards.  The Company re-purchased 110,164 shares of the Company common stock for an aggregate purchase price of $932,000 and on December 14, 2009, granted the shares to certain employees and directors.  The restricted stock awards vest over a five-year period and expensed over that time based on the fair value of the Company’s common stock at the date of grant.  During each of the three-month periods ended September 30, 2014 and 2013, the Company recognized stock based compensation expense related to these awards of $45,000 with a tax benefit of $18,000.  As of September 30, 2014, $37,000 in stock based compensation expense related to these awards remains to be recognized. This remaining expense will be recorded during the quarter ending December 31, 2014.
 
Note 6 - Fair Value Measurements
 
The Company uses fair value measurements to record fair value adjustments to certain assets and to determined fair value disclosures.
 
FASB ASC Topic 820, Fair Market Value Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
 
ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820
 
 
8

 
establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
 
    ·  
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
    ·  
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
 
    ·  
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
 
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
 
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
 
Assets Measured at Fair Value on a Recurring Basis
 
The Bank did not have any financial assets measured at fair value on a recurring basis as of September 30, 2014 and June 30, 2014.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain financial and non-financial assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
 
 
9

 
 
The following table summarizes those assets measured at fair value on a non-recurring basis as of September 30, 2014 and June 30, 2014:

   
September 30, 2014
   
   
Level 1
Inputs
   
Level 2
Inputs
   
Level 3
Inputs
   
Total Fair
Value
   
   
(In thousands)
 
Impaired loans
  $     $     $ 119     $ 119  

   
June 30, 2014
   
   
Level 1
Inputs
   
Level 2
Inputs
   
Level 3
Inputs
   
Total Fair
Value
   
   
(In thousands)
 
Impaired loans
  $     $     $ 2,789     $ 2,789  


For Level 3 assets measured at fair value on non-recurring basis as of September 30, 2014 and June 30, 2014, the significant unobservable inputs used in fair value measurements were as follows:

     
As of September 30, 2014
     
Fair Value Estimate
Valuation
Techniques
Unobservable
Input
Range (Weighted
Average)
     
(Dollars in thousands)
Impaired loans
 
$
119
 
Appraisal of
    Appraisal
 
         
collateral
    adjustments
0% to - 0% (0.0%)
           
    Liquidation
 
           
    expense
6.6% to -23.2% (12.4%)


     
As of June 30, 2014
     
Fair Value Estimate
Valuation
Techniques
Unobservable
Input
Range (Weighted
Average)
     
(Dollars in thousands)
Impaired loans
 
$
2,789
 
Appraisal of
    Appraisal
 
         
collateral
    adjustments
0% to – 19.4% (1.1%)
           
    Liquidation
 
           
    expense
4.2% to -57.9% (7.7%)

An impaired loan is measured for impairment at the time the loan is identified as impaired.  Loans are considered impaired when based on current information and events it is probable that payments of interest and principal will not be made in accordance with the contractual terms of the loan agreement.  The Company’s impaired loans are generally collateral dependent and, as such, are carried at the lower of cost or estimated fair value less estimated selling costs.  Fair values are estimated through current appraisals and adjusted as necessary to reflect current market conditions and as such are classified as Level 3.

Other real estate owned is carried at the lower of cost or fair value less estimated selling costs.  The fair value of other real estate owned is determined based upon independent third-party appraisals of the properties.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.  As of September 30, 2014 and June 30, 2014 there was no further impairment of the other real estate owned balance below the cost basis established at the time the other real estate owned was originally recognized.  Accordingly, the table above does not include other real estate owned.
 
 
10

 
Disclosure about Fair Value of Financial Instruments
 
Fair value of a financial instrument is defined above. Significant estimates were used for the purposes of disclosing fair values. Estimated fair values have been determined using the best available data and estimation methodology suitable for each category of financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported.
 
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
 
The following presents the carrying amount and the fair value as of September 30, 2014 and June 30, 2014, and placement in the fair value hierarchy of the Company’s financial instruments which are carried on the consolidated statement of financial condition at cost and are not recorded at fair value on a recurring basis.  This table excludes financial instruments for which carrying amount approximates fair value, which includes cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable, interest and non-interest bearing demand, savings and club deposits, and accrued interest payable.
 
     Carrying     Fair      Level 1      Level 2      Level 3   
As of September 30, 2014    Amount      Value      Inputs      Inputs      Inputs  
    (In thousands)  
Financial assets:
                             
Securities held to maturity
  $ 81,099     $ 79,586     $ -     $ 79,586     $ -  
Loans receivable (1)
    232,688       233,436       -       -       233,436  
                                         
                                         
Financial liabilities:
                                       
Certificate of deposits
    97,494       98,953       -       98,953       -  
Advances from Federal Home Loan Bank of New York
    32,000       32,999       -       32,999       -  
                                         
As of June 30, 2014
                                       
Financial assets:
                                       
Securities held to maturity
    84,932       83,636       -       83,636       -  
Loans receivable (1)
    230,275       230,300       -       -       230,300  
                                         
Financial liabilities:
                                       
Certificate of deposits
    98,528       100,120       -       100,120       -  
Advances from Federal Home Loan Bank of New York
    38,000       39,281       -       39,281       -  
                                         
(1)  Includes impaired loans measured at fair value on a non-recurring basis as discussed above.
 
 
Methods and assumptions used to estimate fair values of financial instruments previously disclosed are as follows:
 

 
11

 

Cash and Cash Equivalents
 
For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
 
Securities Held to Maturity
 
The fair value for securities held to maturity is based on quoted market prices, where available. If quoted market prices are not available, fair value is estimated using quoted market prices for similar securities.
 
Loans Receivable
 
The fair value of loans is based upon a multitude of sources, including assumed current market rates by category and the Company’s current offering rates.  Both fixed and variable rate loan fair values are derived at using a discounted cash flow methodology.  For variable rate loans, repricing terms, including next repricing date, repricing frequency and repricing rate are factored into the discounted cash flow formula.
 
Federal Home Loan Bank of New York Stock
 
The carrying amount of Federal Home Loan Bank of New York stock approximates fair value since the Company is generally able to redeem this stock at par.
 
Accrued Interest Receivable and Payable
 
The carrying amounts of accrued interest receivable and payable approximate fair value due to the short term nature of these instruments.
 
Deposits
 
Fair values for demand and savings and club accounts are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.
 
Advances from Federal Home Loan Bank of New York
 
Fair values of advances are estimated using discounted cash flow analyses, based on rates currently available to the Company for advances from the Federal Home Loan Bank of New York with similar terms and remaining maturities.
 
Off-Balance Sheet Financial Instruments
 
Fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms, and the present credit worthiness of the counterparties.  As of September 30, 2014 and June 30, 2014, the fair value of the commitments to extend credit was not considered to be material.
 

 
12

 
Note 7 - Loans Receivable and Allowance for Credit Losses
 
The composition of loans receivable at September 30, 2014 and June 30, 2014 was as follows:
 

    September 30, 2014      June 30, 2014  
    (In thousands)  
Residential mortgage:
           
One-to-four family
  $ 144,093     $ 143,283  
Home equity
    38,287       38,484  
                 
      182,380       181,767  
                 
 Commercial real estate
    33,088       32,036  
 Construction
    12,220       12,517  
 Commercial and industrial
    9,754       9,666  
                 
      55,062       54,219  
Consumer:
               
Deposit accounts
    825       602  
Automobile
    29       33  
Personal
    34       36  
Overdraft protection
    178       161  
                 
      1,066       832  
                 
      238,508       236,818  
                 
Loans in process
    (1,944 )     (2,491 )
Deferred loan fees
    (344 )     (366 )
                 
    $ 236,220     $ 233,961  
 
Loans are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan.
 
For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Certain loans may remain on accrual status if they are in the process of collection and are either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.  The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

 
13

 
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities, when required, on the consolidated statement of financial condition. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. All, or part, of the principal balance of loans receivable that are deemed uncollectible are charged against the allowance for loan losses when management determines that the repayment of that amount is highly unlikely.  Any subsequent recoveries are credited to the allowance for loan losses.   Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance.  The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
 
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.
 
The allowance calculation methodology includes segregation of the total loan portfolio into segments. The Company’s loans receivable portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, commercial and industrial and consumer.  Some segments of the Company’s loan receivable portfolio are further disaggregated into classes which allows management to better monitor risk and performance.
 
The residential mortgage loan segment is disaggregated into two classes: one-to-four family loans, which are primarily first liens, and home equity loans, which consist of first and second liens.  The commercial real estate loan segment includes owner and non-owner occupied loans which have medium risk based on historical experience with these type loans.  The construction loan segment is further disaggregated into two classes: one-to-four family owner occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than the one-to-four family owner occupied loans.  The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The majority of commercial and industrial loans are secured by real estate and thus carry a lower risk than traditional commercial and industrial loans.  The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these classes of loans, adjusted for qualitative factors.  These qualitative risk factors include:
 
 
14

 

1.
Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
2.
National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.
3.
Nature and volume of the portfolio and terms of loans.
4.
Experience, ability, and depth of lending management and staff.
5.
Volume and severity of past due, classified and nonaccrual loans as well as and other loan modifications.
6.
Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of Directors.
7.
Existence and effect of any concentrations of credit and changes in the level of such concentrations.
8.
Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
 
Impaired Loans
 
Management evaluates individual loans in all of the loan segments (including loans in residential mortgage and consumer segments) for possible impairment if the recorded investment in the loan is greater than $200,000 and if the loan is either in nonaccrual status or is risk rated Substandard or worse or has been modified in a troubled debt restructuring.  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
 
Loans whose terms are modified are classified as a troubled debt restructuring (“TDR”) if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a reduction in interest rate, a below market rate given the associated credit risk, or an extension of a loan’s stated maturity date. Non-accrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.  Loans classified as TDRs are designated as impaired until they are ultimately repaid in full or foreclosed and sold.  The nature and extent of impairment of TDRs, including those which experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses.
 
Once the determination has been made that a loan is impaired, impairment is measured by comparing the recorded investment in the loan to one of the following: (a) the present value of expected cash flows (discounted at the loan’s effective interest rate), (b) the loan’s observable market price or (c) the fair value of collateral adjusted for expected selling costs.  The method is selected on a loan-by-loan basis with management primarily utilizing the fair value of collateral method.
 
 
15

 
The estimated fair values of the real estate collateral are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
 
The estimated fair values of the non-real estate collateral, such as accounts receivable, inventory and equipment, are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
 
The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
 

 
16

 
 
The following tables present impaired loans by class, segregated by those for which a related allowance was required and those for which a related allowance was not necessary as of September 30, 2014 and June 30, 2014.  The average recorded investment and interest income recognized is presented for the three-month periods ended September 30, 2014 and 2013.


   
September 30, 2014
   
June 30, 2014
 
         
Unpaid
               
Unpaid
       
   
Recorded
   
Principal
   
Related
   
Recorded
   
Principal
   
Related
 
   
Investment
   
Balance
   
Allowance
   
Investment
   
Balance
   
Allowance
 
   
(In thousands)
 
With no related allowance recorded:
                                   
   Residential mortgage
                                   
        One-to-four family
  $ 15,230     $ 15,922     $ -     $ 15,975     $ 16,667     $ -  
        Home equity
    772       832       -       1,740       1,756       -  
   Commercial real estate
    1,880       2,337       -       1,973       2,431       -  
   Construction
                                               
        One-to-four family occupied
    1,707       1,936               1,707       1,936          
        Other
    500       500       -       750       750       -  
   Commercial and industrial
    691       1,221       -       648       1,187       -  
      20,780       22,748       -       22,793       24,727       -  
With an allowance recorded:
                                               
   Residential mortgage
                                               
        One-to-four family
    -       -       -       -       -       -  
        Home equity
    -       -       -       -       -       -  
   Commercial real estate
    -       -       -       -       -       -  
   Construction
                                               
        One-to-four family occupied
    -       -       -       -       -       -  
        Other
    137       138       72       137       138       73  
   Commercial and industrial
    40       49       1       -       -       -  
      177       187       73       137       138       73  
Total:
                                               
   Residential mortgage
                                               
        One-to-four family
    15,230       15,922       -       15,975       16,667       -  
        Home equity
    772       832       -       1,740       1,756       -  
   Commercial real estate
    1,880       2,337       -       1,973       2,431       -  
   Construction
                                               
        One-to-four family occupied
    1,707       1,936       -       1,707       1,936       -  
        Other
    637       638       73       887       888       73  
   Commercial and industrial
    731       1,270       -       648       1,187       -  
    $ 20,957     $ 22,935     $ 73     $ 22,930     $ 24,865     $ 73  
                                                 
 

 

 
As of September 30, 2014 and June 30, 2014, impaired loans listed above included $14.6 million and $16.7 million, respectively, of loans previously modified in TDRs and as such are considered impaired under GAAP.  As of September 30, 2014 and June 30, 2014, $11.9 million and $13.4 million, respectively, of these loans have been performing in accordance with their modified terms for an extended period of time and as such removed from non-accrual status and considered performing.

 
17

 


 

   
Three Months Ended
September 30, 2014
   
Three Months Ended
September 30, 2013
 
   
Average
   
Interest
   
Average
   
Interest
 
   
Recorded
   
Income
   
Recorded
   
Income
 
   
Investment
   
Recognized
   
Investment
   
Recognized
 
    (In thousands)  
With no related allowance recorded:
                       
   Residential
                       
        One-to-four family
  $ 15,603     $ 138     $ 14,090     $ 164  
        Home equity
    1,256       5       2,538       5  
   Commercial real estate
    1,926       17       1,427       10  
   Construction
                               
        One-to-four family occupied
    1,707       24       853       24  
        Other
    625       9       1,175       17  
   Commercial and industrial
    650       7       864       9  
      21,767       200       20,947       229  
With an allowance recorded:
                               
   Residential mortgage
                               
        One-to-four family
    -       -       1,310       4  
        Home equity
    -       -       601       -  
   Commercial real estate
    -       -       1,321       6  
   Construction
                               
        One-to-four family occupied
    -       -       853       -  
        Other
    137       1       69       -  
   Commercial and industrial
    40       -       8       -  
      177       1       4,162       10  
Total:
                               
   Residential mortgage
                               
        One-to-four family
    15,603       138       15,400       168  
        Home equity
    1,256       5       3,139       5  
   Commercial real estate
    1,926       17       2,748       16  
   Construction
                               
        One-to-four family occupied
    1,707       24       1,706       24  
        Other
    762       10       1,244       17  
   Commercial and industrial
    690       7       872       9  
    $ 21,944     $ 201     $ 25,109     $ 239  
                                 

 
18

 


 
Credit Quality Indicators
 
Management uses a ten point internal risk rating system to monitor the credit quality of the loans in the Company’s commercial real estate, construction and commercial and industrial loan segments.  The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually or when credit deficiencies, such as delinquent loan payments, arise. The criticized rating categories utilized by management generally follow bank regulatory definitions. The first six risk rating categories are considered not criticized, and are aggregated as “Pass” rated.  The “Special Mention” category includes assets that are currently protected, but are potentially weak, resulting in increased credit risk and deserving management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified “Substandard” have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  These include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans classified “Doubtful” have all the weaknesses inherent in loans classified “Substandard” with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.  Loans classified as a “Loss” are considered uncollectible and subsequently charged off.
 
 
 

 
19

 


The following tables present the classes of the loans receivable portfolio summarized by the aggregate “Pass” and the criticized categories of “Special Mention”, “Substandard”, “Doubtful” and “Loss” within the internal risk rating system as of September 30, 2014 and June 30, 2014:
 
As of September 30, 2014   Pass     Special
Mention
    Substandard     Doubtful     Loss     Total  
    (In thousands)  
                                     
Commercial real estate
  $ 28,431     $ 2,973       1,617     $ -     $ -     $ 33,021  
Construction
                                               
  One-to-four family owner occupied
    1,263       -       1,707       -       -       2,970  
  Other
    6,196       942       64       -       73       7,275  
Commercial and Industrial
    8,864       104       775       -       -       9,743  
                                                 
  Total
  $ 44,754     $ 4,019     $ 4,163     $ -     $ 73     $ 53,009  
 
 
As of June 30, 2014   Pass     Special
Mention
    Substandard     Doubtful     Loss     Total  
    (In thousands)  
                                     
Commercial real estate
  $ 27,280     $ 3,062       1,621     $ -     $ -     $ 31,963  
Construction
                                               
  One-to-four family owner occupied
      850       -       1,707       -       -       2,557  
  Other
    6,851       445       64       -       73       7,433  
Commercial and Industrial
    8,769       105       778       -       -       9,652  
                                                 
  Total
  $ 43,750     $ 3,612     $ 4,170     $ -     $ 73     $ 51,605  

 
20

 
 
Management further monitors the performance and credit quality of the loan receivable portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.  The following tables represent the classes of the loans receivable portfolio summarized by aging categories of performing loans and non-accrual loans as of September 30, 2014 and June 30, 2014:
 
  As of September 30, 2014
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater
than 90
Days
 
Total
Past Due
 
Current
 
Total Loans
Receivables
 
Nonaccrual
Loans
 
Loans
Receivable >
90 Days and
Accruing
 
   
(In thousands)
 
Residential Mortgage
                                 
  One-to-four family
 
$
2,304
   
1,054
   
2,779
   
6,137
 
$
137,757
 
$
143,894
 
$
3,894
 
$
310
 
  Home equity
   
500
   
732
   
487
   
1,719
   
36,532
   
38,251
   
662
   
50
 
Commercial real estate
   
410
   
-
   
1,244
   
1,654
   
31,367
   
33,021
   
1,381
   
-
 
Construction
                                                 
  One-to-four family owner occupied
   
-
   
-
   
-
   
-
   
2,970
   
2,970
   
-
   
-
 
  Other
   
-
   
-
   
-
   
-
   
7,275
   
7,275
   
-
   
-
 
Commercial and industrial
   
191
   
86
   
170
   
447
   
9,296
   
9,743
   
632
   
-
 
Consumer
   
8
   
3
   
-
   
11
   
1,055
   
1,066
   
-
   
-
 
  Total
 
$
3,413
 
$
1,875
 
$
4,680
 
$
9,968
 
$
226,252
 
$
236,220
 
$
6,569
 
$
360
 


 
21

 

  As of June 30, 2014
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater
than 90
Days
 
Total
Past Due
 
Current
 
Total Loans
Receivables
 
Nonaccrual
Loans
 
Loans
Receivable >
90 Days and
Accruing
 
   
(In thousands)
 
Residential Mortgage
                                 
  One-to-four family
 
$
2,496
   
1,381
   
2,185
   
6,062
 
$
137,048
 
$
143,110
 
$
4,346
 
$
310
 
  Home equity
   
32
   
125
   
1,207
   
1,364
   
37,049
   
38,413
   
1,586
   
51
 
Commercial real estate
   
-
   
-
   
1,248
   
1,248
   
30,715
   
31,963
   
1,248
   
-
 
Construction
                                                 
  One-to-four family owner occupied
   
-
   
-
   
-
   
-
   
2,557
   
2,557
   
-
   
-
 
  Other
   
-
   
-
   
-
   
-
   
7,433
   
7,433
   
137
   
-
 
Commercial and industrial
   
9
   
-
   
170
   
179
   
9,473
   
9,652
   
635
   
-
 
Consumer
   
4
   
-
   
-
   
4
   
829
   
833
   
-
   
-
 
  Total
 
$
2,541
 
$
1,506
 
$
4,810
 
$
8,857
 
$
225,104
 
$
233,961
 
$
7,952
 
$
361
 



 
22

 

Allowance for Loan Losses
 
The following tables summarize the allowance for loan losses, by the portfolio segment segregated into the amounts required for loans individually evaluated for impairment and the amounts required for loans collectively evaluated for impairment as of September 30, 2014 and June 30, 2014.  The activity in the allowance for loan losses is presented for the three-month periods ended September 30, 2014 and 2013 (in thousands):

   
As of September 30, 2014
 
   
Residential
Mortgage
   
Commercial
Real Estate
   
Construction
   
Commercial and
Industrial
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                                                       
Ending balance
 
$
2,227
   
$
700
   
$
331
   
$
247
   
$
10
   
$
17
   
$
3,532
 
Ending balance: individually evaluated for impairment
 
$
-
   
$
-
   
$
72
   
$
1
   
$
-
   
$
-
   
$
73
 
Ending balance: collectively evaluated for impairment
 
$
2,227
   
$
700
   
$
259
   
$
246
   
$
10
   
$
17
   
$
3,459
 
                                                         
Loans receivables:
                                                       
Ending balance
 
$
182,145
   
$
33,021
   
$
10,245
   
$
9,743
   
$
1,066
   
$
-
   
$
236,220
 
Ending balance: individually evaluated  for impairment
 
$
16,002
   
$
1,880
   
$
2,344
   
$
731
   
$
-
   
$
-
   
$
20,957
 
Ending balance: collectively evaluated for impairment
 
$
166,143
   
$
31,141
   
$
7,901
   
$
9,012
   
$
1,066
   
$
-
   
$
215,263
 

 
23

 


   
As of June 30, 2014
 
   
Residential
Mortgage
   
Commercial
Real Estate
   
Construction
   
Commercial and
Industrial
   
Consumer
   
Total
 
Allowance for loan losses:
                                               
Ending balance
 
$
2,183
   
$
860
   
$
379
   
$
256
   
$
8
   
$
3,686
 
Ending balance: individually evaluated for impairment
 
$
-
   
$
-
   
$
73
   
$
-
   
$
-
   
$
73
 
Ending balance: collectively evaluated for impairment
 
$
2,183
   
$
860
   
$
306
   
$
256
   
$
8
   
$
3,613
 
                                                 
Loans receivables:
                                               
Ending balance
 
$
181,524
   
$
31,963
   
$
9,990
   
$
9,652
   
$
832
   
$
233,961
 
Ending balance: individually evaluated  for impairment
 
$
17,715
   
$
1,973
   
$
2,594
   
$
648
   
$
-
   
$
22,930
 
Ending balance: collectively evaluated for impairment
 
$
163,809
   
$
29,990
   
$
7,396
   
$
9,004
   
$
832
   
$
211,031
 
  
 
24

 



    Three Months Ended September 30, 2014  
     Residential
Mortgage
     Commercial
Real Estate
     Construction      Commercial and
Industrial
     Consumer      Unallocated      Total  
       
Allowance for loan losses:
                                         
Beginning Balance
  $ 2,183     $ 860     $ 379     $ 256     $ 8     $ -     $ 3,686  
   Charge-offs
    (285 )     -       -       -       -       -       (285 )
   Recoveries
    31       -       -       -       -       -       31  
   Provisions
    298       (160     (48