Loans Receivable And Allowance For Loan Losses

6 Months Ended

Mar. 31, 2015

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Loans Receivable And Allowance For Loan Losses

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable and loans held for sale consisted of the following at March 31, 2015 and September 30, 2014

(dollars in thousands):

	March 31, 2015					September 30, 2014
	Amount			Percent		Amount			Percent
Mortgage loans:
One- to four-family (1)	$	107,821		17.1	%	$	98,534		16.2	%
Multi-family	48,641			7.7		46,206			7.6
Commercial	296,338			46.8		294,354			48.5
Construction and land development	77,433			12.2		68,479			11.3
Land	28,464			4.5		29,589			4.9
Total mortgage loans	558,697			88.3		537,162			88.5
Consumer loans:
Home equity and second mortgage	34,362			5.4		34,921			5.7
Other	4,567			0.8		4,699			0.8
Total consumer loans	38,929			6.2		39,620			6.5
Commercial business loans	34,911			5.5		30,559			5.0
Total loans receivable	632,537			100.0	%	607,341			100.0	%
Less:
Undisbursed portion of construction  loans in process	(35,990		)			(29,416		)
Deferred loan origination fees	(1,893		)			(1,746		)
Allowance for loan losses	(10,382		)			(10,427		)
Total loans receivable, net	$	584,272				$	565,752

________________________

(1)    Includes loans held for sale.

Construction and Land Development Loan Portfolio Composition

The following table sets forth the composition of the Company’s construction and land development loan portfolio at March 31, 2015 and September 30, 2014 (dollars in thousands):

	March 31, 2015				September 30, 2014
	Amount		Percent		Amount		Percent
Custom and owner/builder	$	60,889	78.6	%	$	59,752	87.3	%
Speculative one- to four-family	2,769		3.6		2,577		3.8
Commercial real estate	3,395		4.4		3,310		4.8
Multi-family (including condominiums)	10,380		13.4		2,840		4.1
Total construction and  land development loans	$	77,433	100.0	%	$	68,479	100.0	%

Allowance for Loan Losses

The following tables set forth information for the three and six months ended March 31, 2015 and 2014 regarding activity in the allowance for loan losses by portfolio segment (in thousands):

	Three Months Ended March 31, 2015
	Beginning Allowance		Provision /(Credit)			Charge- offs		Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,504	$	24		$	39	$	107	$	1,596
Multi-family	368		(66		)	—		—		302
Commercial	3,646		(45		)	—		—		3,601
Construction – custom and owner/builder	460		15			—		—		475
Construction – speculative one- to four-family	50		14			—		—		64
Construction – commercial	28		9			—		—		37
Construction – multi-family	75		54			—		—		129
Land	2,817		(67		)	—		3		2,753
Consumer loans:
Home equity and second mortgage	801		5			9		—		797
Other	159		34			4		1		190
Commercial business loans	414		23			—		1		438
Total	$	10,322	$	—		$	52	$	112	$	10,382

	Six Months Ended March 31, 2015
	Beginning Allowance		Provision /(Credit)			Charge- offs		Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,650	$	(23	)	$	157	$	126	$	1,596
Multi-family	387		(85		)	—		—		302
Commercial	4,836		(1,235		)	—		—		3,601
Construction – custom and owner/builder	450		25			—		—		475
Construction – speculative one- to four-family	52		12			—		—		64
Construction – commercial	78		(41		)	—		—		37
Construction – multi-family	25		104			—		—		129
Land	1,434		1,312			4		11		2,753
Consumer loans:
Home equity and second mortgage	879		(62		)	20		—		797
Other	176		17			5		2		190
Commercial business loans	460		(24		)	—		2		438
Total	$	10,427	$	—		$	186	$	141	$	10,382

	Three Months Ended March 31, 2014
	Beginning Allowance		Provision /(Credit)		Charge- offs		Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,321	$	560	$	273	$	143	$	1,751
Multi-family	551		(118)		—		—		433
Commercial	5,113		222		168		1		5,168
Construction – custom and owner/builder	332		16		—		—		348
Construction – speculative one- to four-family	118		(72)		—		—		46
Construction – commercial	80		(55)		—		—		25
Construction – multi-family	—		(126)		—		126		—
Construction – land development	—		(218)		—		218		—
Land	1,865		(242)		162		107		1,568
Consumer loans:
Home equity and second mortgage	809		52		—		7		868
Other	208		(12)		2		—		194
Commercial business loans	348		(7)		—		7		348
Total	$	10,745	$	—	$	605	$	609	$	10,749

	Six Months Ended March 31, 2014
	Beginning Allowance		Provision /(Credit)		Charge- offs		Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,449	$	774	$	623	$	151	$	1,751
Multi-family	749		(316)		—		—		433
Commercial	5,275		352		463		4		5,168
Construction – custom and owner/builder	262		86		—		—		348
Construction – speculative one- to four-family	96		(50)		—		—		46
Construction – commercial	56		(31)		—		—		25
Construction – multi-family	—		(126)		—		126		—
Construction – land development	—		(287)		—		287		—
Land	1,940		(524)		255		407		1,568
Consumer loans:
Home equity and second mortgage	782		107		28		7		868
Other	200		(4)		2		—		194
Commercial business loans	327		19		14		16		348
Total	$	11,136	$	—	$	1,385	$	998	$	10,749

The following tables present information on the loans evaluated individually and collectively for impairment in the allowance for loan losses at March 31, 2015 and September 30, 2014 (in thousands):

	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
March 31, 2015
Mortgage loans:
One- to four-family	$	652	$	944	$	1,596	$	6,761	$	101,060	$	107,821
Multi-family	14		288		302		4,055		44,586		48,641
Commercial	80		3,521		3,601		12,542		283,796		296,338
Construction – custom and owner/builder	19		456		475		225		36,550		36,775
Construction – speculative one- to four-family	—		64		64		—		1,787		1,787
Construction – commercial	—		37		37		—		1,283		1,283
Construction –  multi-family	—		129		129		—		1,598		1,598
Land	1,735		1,018		2,753		4,957		23,507		28,464
Consumer loans:
Home equity and second mortgage	156		641		797		698		33,664		34,362
Other	26		164		190		38		4,529		4,567
Commercial business loans	—		438		438		—		34,911		34,911
Total	$	2,682	$	7,700	$	10,382	$	29,276	$	567,271	$	596,547
September 30, 2014
Mortgage loans:
One- to four-family	$	709	$	941	$	1,650	$	7,011	$	91,523	$	98,534
Multi-family	39		348		387		3,317		42,889		46,206
Commercial	797		4,039		4,836		17,188		277,166		294,354
Construction – custom and owner/builder	—		450		450		—		34,553		34,553
Construction – speculative one- to four-family	—		52		52		—		1,204		1,204
Construction – commercial	—		78		78		—		2,887		2,887
Construction – multi-family	—		25		25		—		419		419
Land	300		1,134		1,434		5,158		24,431		29,589
Consumer loans:
Home equity and second mortgage	162		717		879		797		34,124		34,921
Other	—		176		176		3		4,696		4,699
Commercial business loans	—		460		460		—		30,559		30,559
Total	$	2,007	$	8,420	$	10,427	$	33,474	$	544,451	$	577,925

Credit Quality Indicators

The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential.  The Company categorizes loans into risk grade 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 such as the estimated fair value of the collateral.  The Company uses the following definitions for credit risk ratings as part of the ongoing monitoring of the credit quality of its loan portfolio:

Pass:  Pass loans are defined as those loans that meet acceptable quality underwriting standards.

Watch:  Watch loans are defined as those loans that still exhibit acceptable quality, but have some concerns that justify greater attention.  If these concerns are not corrected, a potential for further adverse categorization exists.  These concerns could relate to a specific condition peculiar to the borrower, its industry segment or the general economic environment.

Special Mention: Special mention loans are defined as those loans deemed by management to have some potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the loan.  Assets in this category do not expose the Company to sufficient risk to warrant a substandard classification.

Substandard:  Substandard loans are defined as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged.  Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt.  If the weakness or weaknesses are not corrected, there is the distinct possibility that some loss will be sustained.

Loss:  Loans in this classification are considered uncollectible and of such little value that continuance as bankable assets is not warranted.  This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future.

The following table lists the loan credit risk grades utilized by the Company that serve as credit quality indicators by portfolio segment at March 31, 2015 and September 30, 2014 (in thousands):

	Loan Grades
March 31, 2015	Pass		Watch		Special Mention		Substandard		Total
Mortgage loans:
One- to four-family	$	99,880	$	1,999	$	1,037	$	4,905	$	107,821
Multi-family	39,842		1,682		6,357		760		48,641
Commercial	275,554		8,121		5,846		6,817		296,338
Construction – custom and owner/builder	36,550		—		—		225		36,775
Construction – speculative one- to four-family	1,787		—		—		—		1,787
Construction – commercial	1,283		—		—		—		1,283
Construction – multi-family	1,598		—		—		—		1,598
Land	20,181		1,196		2,454		4,633		28,464
Consumer loans:
Home equity and second mortgage	32,703		605		23		1,031		34,362
Other	4,526		—		—		41		4,567
Commercial business loans	34,773		52		86		—		34,911
Total	$	548,677	$	13,655	$	15,803	$	18,412	$	596,547
September 30, 2014
Mortgage loans:
One- to four-family	$	90,340	$	1,749	$	1,045	$	5,400	$	98,534
Multi-family	37,336		1,697		6,410		763		46,206
Commercial	266,467		5,819		15,946		6,122		294,354
Construction – custom and owner/builder	34,553		—		—		—		34,553
Construction – speculative one- to four-family	1,204		—		—		—		1,204
Construction – commercial	2,887		—		—		—		2,887
Construction – multi-family	419		—		—		—		419
Land	21,084		114		3,586		4,805		29,589
Consumer loans:
Home equity and second mortgage	33,207		724		27		963		34,921
Other	4,657		39		—		3		4,699
Commercial business loans	30,355		112		92		—		30,559
Total	$	522,509	$	10,254	$	27,106	$	18,056	$	577,925

The following tables present an age analysis of past due status of loans by portfolio segment at March 31, 2015 and September 30, 2014 (dollars in thousands):

	30–59 Days Past Due		60-89 Days Past Due		Non- Accrual		Past Due 90 Days or More and Still Accruing		Total Past Due		Current		Total Loans
March 31, 2015
Mortgage loans:
One- to four-family	$	—	$	52	$	3,751	$	—	$	3,803	$	104,018	$	107,821
Multi-family	—		—		760		—		760		47,881		48,641
Commercial	—		686		1,535		—		2,221		294,117		296,338
Construction – custom and owner/builder	—		—		225		—		225		36,550		36,775
Construction – speculative one- to four- family	—		—		—		—		—		1,787		1,787
Construction – commercial	—		—		—		—		—		1,283		1,283
Construction – multi-family	—		—		—		—		—		1,598		1,598
Land	101		—		4,214		—		4,315		24,149		28,464
Consumer loans:
Home equity and second mortgage	50		407		401		—		858		33,504		34,362
Other	—		—		38		—		38		4,529		4,567
Commercial business loans	16		—		—		—		16		34,895		34,911
Total	$	167	$	1,145	$	10,924	$	—	$	12,236	$	584,311	$	596,547
September 30, 2014
Mortgage loans:
One- to four-family	$	—	$	577	$	4,376	$	—	$	4,953	$	93,581	$	98,534
Multi-family	—		—		—		—		—		46,206		46,206
Commercial	—		695		1,468		812		2,975		291,379		294,354
Construction – custom and owner/        builder	—		156		—		—		156		34,397		34,553
Construction – speculative one- to four- family	—		—		—		—		—		1,204		1,204
Construction – commercial	—		—		—		—		—		2,887		2,887
Construction – multi-family	—		—		—		—		—		419		419
Land	357		27		4,564		—		4,948		24,641		29,589
Consumer loans:
Home equity and second mortgage	62		44		498		—		604		34,317		34,921
Other	42		—		3		—		45		4,654		4,699
Commercial business loans	21		—		—		—		21		30,538		30,559
Total	$	482	$	1,499	$	10,909	$	812	$	13,702	$	564,223	$	577,925

Impaired Loans

A loan is considered impaired when (based on current information and events) it is probable that the Company will be unable to collect all contractual principal and interest payments due in accordance with the original or modified terms of the loan agreement.  Impaired loans are measured based on the estimated fair value of the collateral less the estimated cost to sell if the loan is considered collateral dependent.  Impaired loans that are not considered to be collateral dependent are measured based on the present value of expected future cash flows.

The categories of non-accrual loans and impaired loans overlap, although they are not coextensive.  The Company considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on non-accrual status, such as the financial strength of the borrower, the estimated collateral value, reasons for the delay, payment record, the amount past due and the number of days past due.

ollowing is a summary of information related to impaired loans by portfolio segment as of March 31, 2015 and for the three and six months then ended (in thousands):

	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		QTD Average Recorded Investment (1)		YTD Average Recorded Investment (2)		QTD Interest Income Recognized (1)		YTD Interest Income Recognized (2)		QTD Cash Basis Interest Income Recognized (1)		YTD Cash Basis Interest Income Recognized (2)
With no related allowance recorded:
Mortgage loans:
One- to four-family	$	2,209	$	2,791	$	—	$	2,481	$	2,537	$	6	$	12	$	6	$	12
Multi-family	760		1,616		—		380		253		—		—		—		—
Commercial	10,881		11,942		—		10,927		10,970		137		289		103		230
Construction – custom and owner/     builder	157		156		—		157		104		—		—		—		—
Land	844		1,272		—		936		984		6		17		7		13
Consumer loans:
Home equity and second mortgage	259		502		—		339		343		—		—		—		—
Other	—		—		—		—		1		—		—		—		—
Commercial business loans	—		8		—		—		—		—		—		—		—
Subtotal	15,110		18,287		—		15,220		15,192		149		318		116		255
With an allowance recorded:
Mortgage loans:
One- to four-family	4,552		4,552		652		4,360		4,361		44		81		32		62
Multi-family	3,295		3,295		14		3,301		3,306		44		88		33		66
Commercial	1,661		1,661		80		1,608		3,115		31		62		23		46
Construction – custom and owner/     builder	68		68		19		34		23		—				—		—
Land	4,113		4,113		1,735		4,096		4,090		6		12		5		11
Consumer loans:
Home equity and second mortgage	439		439		156		441		443		4		8		3		7
Other	38		38		26		19		13		—		—		—		—
Subtotal	14,166		14,166		2,682		13,859		15,351		129		251		96		192

	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		QTD Average Recorded Investment (1)		YTD Average Recorded Investment (2)		QTD Interest Income Recognized (1)		YTD Interest Income Recognized (2)		QTD Cash Basis Interest Income Recognized (1)		YTD Cash Basis Interest Income Recognized (2)
Total
Mortgage loans:
One- to four-family	$	6,761	$	7,343	$	652	$	6,841	$	6,898	$	50	$	93	$	38	$	74
Multi-family	4,055		4,911		14		3,681		3,559		44		88		33		66
Commercial	12,542		13,603		80		12,535		14,085		168		351		126		276
Construction – custom and owner/     builder	225		224		19		191		127		—		—		—		—
Land	4,957		5,385		1,735		5,032		5,074		12		29		12		24
Consumer loans:
Home equity and second mortgage	698		941		156		780		786		4		8		3		7
Other	38		38		26		19		14		—		—		—		—
Commercial business loans	—		8		—		—		—		—		—		—		—
Total	$	29,276	$	32,453	$	2,682	$	29,079	$	30,543	$	278	$	569	$	212	$	447

________________________________________________

(1) For the three months ended March 31, 2015.

(2) For the six months ended March 31, 2015.

The following is a summary of information related to impaired loans by portfolio segment as of and for the year ended September 30, 2014 (in thousands):

	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		YTD Average Recorded Investment (1)		YTD Interest Income Recognized (1)		YTD Cash Basis Interest Income Recognized (1)
With no related allowance recorded:
Mortgage loans:
One- to four-family	$	2,647	$	3,301	$	—	$	3,763	$	—	$	—
Multi-family	—		857		—		—		—		—
Commercial	11,057		14,184		—		7,859		414		325
Construction – multi-family	—		—		—		57		—		—
Construction – land development	—		—		—		141		—		—
Land	1,079		1,674		—		1,044		12		10
Consumer loans:
Home equity and second mortgage	351		574		—		276		—		—
Other	3		3		—		7		—		—
Commercial business loans	—		10		—		22		—		—
Subtotal	15,137		20,603		—		13,169		426		335
With an allowance recorded:
Mortgage loans:
One- to four-family	4,364		4,364		709		4,140		146		110
Multi-family	3,317		3,317		39		4,157		220		165
Commercial	6,131		6,131		797		10,083		541		423
Construction – speculative one- to four-family	—		—		—		275		11		7
Land	4,079		4,079		300		3,780		18		16
Consumer loans:
Home equity and second mortgage	446		446		162		404		16		12
Subtotal	18,337		18,337		2,007		22,839		952		733
Total
Mortgage loans:
One- to four-family	7,011		7,665		709		7,903		146		110
Multi-family	3,317		4,174		39		4,157		220		165
Commercial	17,188		20,315		797		17,942		955		748
Construction – speculative one- to four-family	—		—		—		275		11		7
Construction – multi-family	—		—		—		57		—		—
Construction – land development	—		—		—		141		—		—
Land	5,158		5,753		300		4,824		30		26
Consumer loans:
Home equity and second mortgage	797		1,020		162		680		16		12
Other	3		3		—		7		—		—
Commercial business loans	—		10		—		22		—		—
Total	$	33,474	$	38,940	$	2,007	$	36,008	$	1,378	$	1,068

______________________________________________

(1) For the year ended September 30, 2014.

The following table sets forth information with respect to the Company’s non-performing assets at March 31, 2015 and September 30, 2014 (dollars in thousands):

	March 31, 2015			September 30, 2014
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family	$	3,751		$	4,376
Multi-family	760			—
Commercial	1,535			1,468
Construction – custom and owner/builder	225			—
Land	4,214			4,564
Consumer loans:
Home equity and second mortgage	401			498
Other	38			3
Total loans accounted for on a non-accrual basis	10,924			10,909
Accruing loans which are contractually past due 90 days or more	—			812
Total of non-accrual and 90 days past due loans	10,924			11,721
Non-accrual investment securities	1,009			1,101
OREO and other repossessed assets, net	7,866			9,092
Total non-performing assets (1)	$	19,799		$	21,914
Troubled debt restructured loans on accrual status (2)	$	12,673		$	16,804
Non-accrual and 90 days or more past due loans as a percentage of loans receivable	1.84		%	2.03		%
Non-accrual and 90 days or more past due loans as a percentage of total assets	1.41		%	1.57		%
Non-performing assets as a percentage of total assets	2.55		%	2.94		%
Loans receivable (3)	$	594,654		$	576,179
Total assets	$	776,270		$	745,565

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(1) Does not include troubled debt restructured loans on accrual status.

(2) Does not include troubled debt restructured loans totaling $2.1 million and $2.3 million reported as non-accrual loans at March 31, 2015 and September 30, 2014, respectively.

(3)  Includes loans held for sale and before the allowance for loan losses.

Troubled debt restructured loans are loans for which the Company, for economic or legal reasons related to the borrower’s financial condition, has granted a significant concession to the borrower that it would otherwise not consider.  The loan terms which have been modified or restructured due to a borrower’s financial difficulty include but are not limited to: a reduction in the stated interest rate; an extension of the maturity at an interest rate below current market; a reduction in the face amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals and renewals.  Troubled debt restructured loans are considered impaired loans and are individually evaluated for impairment.  Troubled debt restructured loans can be classified as either accrual or non-accrual. Troubled debt restructured loans are classified as non-performing loans unless they have been performing in accordance with their modified terms for a period of at least six months. The Company had $14.79 million and $19.09 million in troubled debt restructured loans included in impaired loans at March 31, 2015 and September 30, 2014, respectively, and had no commitments at these dates to lend additional funds on these loans.  The allowance for loan losses allocated to troubled debt restructured loans at March 31, 2015 and September 30, 2014 was $249,000 and $994,000, respectively.

The following table sets forth information with respect to the Company’s troubled debt restructured loans by interest accrual status as of March 31, 2015 and September 30, 2014 (in thousands):

	March 31, 2015
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	3,010	$	169	$	3,179
Multi-family	3,295		—		3,295
Commercial	5,328		1,535		6,863
Land	743		265		1,008
Consumer loans:
Home equity and second mortgage	297		152		449
Total	$	12,673	$	2,121	$	14,794

	September 30, 2014
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	2,634	$	233	$	2,867
Multi-family	3,317		—		3,317
Commercial	9,960		1,468		11,428
Land	594		431		1,025
Consumer loans:
Home equity and second mortgage	299		152		451
Total	$	16,804	$	2,284	$	19,088

The following tables set forth information with respect to the Company’s troubled debt restructured loans by portfolio segment that occurred during the six months ended March 31, 2015 and the year ended September 30, 2014 (dollars in thousands):

March 31, 2015	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		End of Period Balance
Commercial (1)	1	$	415	$	116	$	116
Total	1	$	415	$	116	$	116

September 30, 2014
One-to four-family (1)	1	$	42	$	42	$	42
Land (1)	1	157		157		153
Total	2	$	199	$	199	$	195

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(1) Modifications were a result of a reduction in the stated interest rate and/or collateral change.