Loans Receivable And Allowance For Loan Losses

6 Months Ended

Mar. 31, 2018

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 by portfolio segment consisted of the following at March 31, 2018 and September 30, 2017 (dollars in thousands):

	March 31, 2018				September 30, 2017
	Amount		Percent		Amount		Percent
Mortgage loans:
One- to four-family (1)	$	112,862	14.1	%	$	118,147	15.1	%
Multi-family	55,157		6.9		58,607		7.5
Commercial	341,845		42.8		328,927		41.9
Construction - custom and owner/builder	119,230		14.9		117,641		15.0
Construction - speculative one- to four-family	10,876		1.4		9,918		1.2
Construction - commercial	25,166		3.1		19,630		2.5
Construction - multi-family	24,812		3.1		21,327		2.7
Construction - land development	2,950		0.4		—		—
Land	20,602		2.6		23,910		3.0
Total mortgage loans	713,500		89.3		698,107		88.9
Consumer loans:
Home equity and second mortgage	38,124		4.8		38,420		4.9
Other	3,646		0.5		3,823		0.5
Total consumer loans	41,770		5.3		42,243		5.4
Commercial business loans (2)	43,465		5.4		44,444		5.7
Total loans receivable	798,735		100.0	%	784,794		100.0	%
Less:
Undisbursed portion of construction  loans in process	78,108				82,411
Deferred loan origination fees, net	2,515				2,466
Allowance for loan losses	9,544				9,553
	90,167				94,430
Loans receivable, net	$	708,568			$	690,364
_____________________________
(1) Does not include one- to four-family loans held for sale totaling $3,981and $3,515 at March 31, 2018 and September 30, 2017, respectively.
(2) Does not include commercial business loans held for sale totaling $0 and $84 at March 31, 2018 and September 30, 2017, respectively.

Allowance for Loan Losses

The following tables set forth information for the three and six months ended March 31, 2018 and 2017 regarding activity in the allowance for loan losses by portfolio segment (dollars in thousands):

	Three Months Ended March 31, 2018
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	1,125	$	(65	)	$	—		$	—	$	1,060
Multi-family	430		(44		)	—			—		386
Commercial	4,093		133			(28		)	—		4,198
Construction – custom and owner/builder	788		(83		)	—			—		705
Construction – speculative one- to four-family	75		21			—			3		99
Construction – commercial	396		49			—			—		445
Construction – multi-family	228		56			—			—		284
Construction - land development	—		48			—			—		48
Land	780		(94		)	—			5		691
Consumer loans:
Home equity and second mortgage	958		(13		)	—			—		945
Other	129		(8		)	(1		)	—		120
Commercial business loans	563		—			—			—		563
Total	$	9,565	$	—		$	(29	)	$	8	$	9,544

	Six Months Ended March 31, 2018
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,082	$	(22	)	$	—		$	—	$	1,060
Multi-family	447		(61		)	—			—		386
Commercial	4,184		42			(28		)	—		4,198
Construction – custom and owner/builder	699		6			—			—		705
Construction – speculative one- to four-family	128		(40		)	—			11		99
Construction – commercial	303		142			—			—		445
Construction – multi-family	173		111			—			—		284
Construction – land development	—		48			—			—		48
Land	918		(236		)	—			9		691
Consumer loans:
Home equity and second mortgage	983		(38		)	—			—		945
Other	121		—			(2		)	1		120
Commercial business loans	515		48			—			—		563
Total	$	9,553	$	—		$	(30	)	$	21	$	9,544

	Three Months Ended March 31, 2017
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	1,177	$	(51	)	$	—		$	—	$	1,126
Multi-family	400		80			—			—		480
Commercial	4,523		(199		)	(8		)	—		4,316
Construction – custom and owner/builder	636		59			—			—		695
Construction – speculative one- to four-family	100		(15		)	—			—		85
Construction – commercial	282		(14		)	—			—		268
Construction – multi-family	385		(289		)	—			—		96
Land	836		106			—			5		947
Consumer loans:
Home equity and second mortgage	859		98			—			—		957
Other	156		(26		)	(1		)	1		130
Commercial business loans	489		1			—			—		490
Total	$	9,843	$	(250	)	$	(9	)	$	6	$	9,590

	Six Months Ended March 31, 2017
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,239	$	(134	)	$	—		$	21	$	1,126
Multi-family	473		7			—			—		480
Commercial	4,384		(55)			(13		)	—		4,316
Construction – custom and owner/builder	619		76			—			—		695
Construction – speculative one- to four-family	130		(45)			—			—		85
Construction – commercial	268		—			—			—		268
Construction – multi-family	316		(220		)	—			—		96
Land	820		119			(2		)	10		947
Consumer loans:
Home equity and second mortgage	939		18			—			—		957
Other	156		(24)			(4		)	2		130
Commercial business loans	482		8			—			—		490
Total	$	9,826	$	(250	)	$	(19	)	$	33	$	9,590

The following tables present information on the loans evaluated individually and collectively for impairment in the allowance for loan losses by portfolio segment at March 31, 2018 and September 30, 2017 (dollars 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, 2018
Mortgage loans:
One- to four-family	$	—	$	1,060	$	1,060	$	1,318	$	111,544	$	112,862
Multi-family	—		386		386		—		55,157		55,157
Commercial	—		4,198		4,198		2,578		339,267		341,845
Construction – custom and owner/builder	—		705		705		—		69,073		69,073
Construction – speculative one- to four-family	—		99		99		—		3,968		3,968
Construction – commercial	—		445		445		—		17,788		17,788
Construction –  multi-family	—		284		284		—		12,613		12,613
Construction - land development	—		48		48		—		1,484		1,484
Land	40		651		691		640		19,962		20,602
Consumer loans:
Home equity and second mortgage	293		652		945		479		37,645		38,124
Other	—		120		120				3,646		3,646
Commercial business loans	63		500		563		181		43,284		43,465
Total	$	396	$	9,148	$	9,544	$	5,196	$	715,431	$	720,627
September 30, 2017
Mortgage loans:
One- to four-family	$	—	$	1,082	$	1,082	$	1,443	$	116,704	$	118,147
Multi-family	—		447		447		—		58,607		58,607
Commercial	26		4,158		4,184		3,873		325,054		328,927
Construction – custom and owner/builder	—		699		699		—		63,538		63,538
Construction – speculative one- to four-family	—		128		128		—		4,639		4,639
Construction – commercial	—		303		303		—		11,016		11,016
Construction – multi-family	—		173		173		—		6,912		6,912
Land	125		793		918		1,119		22,791		23,910
Consumer loans:
Home equity and second mortgage	325		658		983		557		37,863		38,420
Other	—		121		121		—		3,823		3,823
Commercial business loans	—		515		515		—		44,444		44,444
Total	$	476	$	9,077	$	9,553	$	6,992	$	695,391	$	702,383

The following tables present an analysis of loans by aging category and portfolio segment at March 31, 2018 and September 30, 2017 (dollars in thousands):

	30–59 Days Past Due		60-89 Days Past Due		Non- Accrual (1)		Past Due 90 Days or More and Still Accruing		Total Past Due		Current		Total Loans
March 31, 2018
Mortgage loans:
One- to four-family	$	—	$	247	$	801	$	—	$	1,048	$	111,814	$	112,862
Multi-family	—		—		—		—		—		55,157		55,157
Commercial	796		—		370		—		1,166		340,679		341,845
Construction – custom and owner/builder	—		—		—		—		—		69,073		69,073
Construction – speculative one- to four- family	—		—		—		—		—		3,968		3,968
Construction – commercial	—		—		—		—		—		17,788		17,788
Construction – multi-family	—		—		—		—		—		12,613		12,613
Construction – land development	—		—		—		—		—		1,484		1,484
Land	113		—		395		—		508		20,094		20,602
Consumer loans:
Home equity and second mortgage	52		24		185		—		261		37,863		38,124
Other	—		—		—		—		—		3,646		3,646
Commercial business loans	123		—		181		—		304		43,161		43,465
Total	$	1,084	$	271	$	1,932	$	—	$	3,287	$	717,340	$	720,627
September 30, 2017
Mortgage loans:
One- to four-family	$	193	$	—	$	874	$	—	$	1,067	$	117,080	$	118,147
Multi-family	—		—		—		—		—		58,607		58,607
Commercial	—		107		213		—		320		328,607		328,927
Construction – custom and owner/        builder	—		—		—		—		—		63,538		63,538
Construction – speculative one- to four- family	—		—		—		—		—		4,639		4,639
Construction – commercial	—		—		—		—		—		11,016		11,016
Construction – multi-family	—		—		—		—		—		6,912		6,912
Land	—		—		566		—		566		23,344		23,910
Consumer loans:
Home equity and second mortgage	56		—		258		—		314		38,106		38,420
Other	36		—		—		—		36		3,787		3,823
Commercial business loans	110		—		—		—		110		44,334		44,444
Total	$	395	$	107	$	1,911	$	—	$	2,413	$	699,970	$	702,383

______________________

(1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual.

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 on-going 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. 

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. At March 31, 2018 and September 30, 2017, there were no loans classified as loss.

The following tables present an analysis of loans by credit quality indicator and portfolio segment at March 31, 2018 and September 30, 2017 (dollars in thousands):

	Loan Grades
March 31, 2018	Pass		Watch		Special Mention		Substandard		Total
Mortgage loans:
One- to four-family	$	109,041	$	1,466	$	591	$	1,764	$	112,862
Multi-family	55,157		—		—		—		55,157
Commercial	331,579		5,993		3,507		766		341,845
Construction – custom and owner/builder	67,818		1,255		—		—		69,073
Construction – speculative one- to four-family	3,968		—		—		—		3,968
Construction – commercial	17,788		—		—		—		17,788
Construction – multi-family	12,613		—		—		—		12,613
Construction – land development	1,484		—		—		—		1,484
Land	17,429		1,005		1,773		395		20,602
Consumer loans:
Home equity and second mortgage	37,623		147		—		354		38,124
Other	3,611		—		—		35		3,646
Commercial business loans	43,203		26		55		181		43,465
Total	$	701,314	$	9,892	$	5,926	$	3,495	$	720,627
September 30, 2017
Mortgage loans:
One- to four-family	$	115,481	$	422	$	644	$	1,600	$	118,147
Multi-family	56,857		—		1,750		—		58,607
Commercial	318,717		6,059		3,540		611		328,927
Construction – custom and owner/builder	63,210		328		—		—		63,538
Construction – speculative one- to four-family	4,639		—		—		—		4,639
Construction – commercial	11,016		—		—		—		11,016
Construction – multi-family	6,912		—		—		—		6,912
Land	20,528		1,022		1,794		566		23,910
Consumer loans:
Home equity and second mortgage	37,828		152		—		440		38,420
Other	3,787		—		—		36		3,823
Commercial business loans	43,416		973		55		—		44,444
Total	$	682,391	$	8,956	$	7,783	$	3,253	$	702,383

Impaired Loans

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts (principal and interest) when due according to the contractual terms of the loan agreement. Smaller balance homogeneous loans, such as residential mortgage loans and consumer loans, may be collectively evaluated for impairment. When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when, as an alternative, the current estimated fair value of the collateral, reduced by estimated costs to sell (if applicable), or observable market price is used. The valuation of real estate collateral is subjective in nature and may be adjusted in future periods because of changes in economic conditions.  Management considers third-party appraisals, as well as independent fair market value assessments from realtors or persons involved in selling real estate, in determining the estimated fair value of particular properties.  In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals.  Accordingly, the amounts of any such potential changes and any related adjustments are generally recorded at the time such information is received. When the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest and net deferred loan origination fees or costs), impairment is recognized by creating or adjusting an allocation of the allowance for loan losses and uncollected accrued interest is reversed against interest income. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

The categories of non-accrual loans and impaired loans overlap, although they are not identical.

The following table is a summary of information related to impaired loans by portfolio segment as of March 31, 2018 and for the three and six months then ended (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		Quarter to Date ("QTD") Average Recorded Investment (1)		Year to Date ("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	$	1,318	$	1,464	$	—	$	1,371	$	1,395	$	22	$	42	$	19	$	36
Commercial	2,578		2,606		—		2,365		2,232		52		75		45		62
Land	445		537		—		245		262		6		6		5		5
Consumer loans:
Home equity and second mortgage	185		185		—		187		165		1		3		1		3
Subtotal	4,526		4,792		—		4,168		4,054		81		126		70		106
With an allowance recorded:
Mortgage loans:
One- to four-family	—		—		—		22		15		—		—		—		—
Commercial	—		—		—		947		1,266		—		27		—		21
Land	195		195		40		547		639		—		9		—		8
Consumer loans:
Home equity and second mortgage	294		294		293		295		341		6		12		6		10
Commercial business loans	181		181		63		181		121		—		—		—		—
Subtotal	670		670		396		1,992		2,382		6		48		6		39
Total:
Mortgage loans:
One- to four-family	1,318		1,464		—		1,393		1,410		22		42		19		36
Commercial	2,578		2,606		—		3,312		3,498		52		102		45		83
Land	640		732		40		792		901		6		15		5		13
Consumer loans:
Home equity and second mortgage	479		479		293		482		506		7		15		7		13
Commercial business loans	181		181		63		181		121		—		—		—		—
Total	$	5,196	$	5,462	$	396	$	6,160	$	6,436	$	87	$	174	$	76	$	145

______________________________________________

(1) For the three months ended March 31, 2018.

(2) For the six months ended March 31, 2018.

The following table is a summary of information related to impaired loans by portfolio segment as of and for the year ended September 30, 2017 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		Average Recorded Investment (1)		Interest Income Recognized (1)		Cash Basis Interest Income Recognized (1)
With no related allowance recorded:
Mortgage loans:
One- to four-family	$	1,443	$	1,589	$	—	$	1,108	$	68	$	62
Commercial	1,967		1,967		—		3,901		188		143
Construction – custom and owner/builder	—		—		—		147		7		7
Land	297		410		—		512		8		6
Consumer loans:
Home equity and second mortgage	123		123		—		284		—		—
Commercial business loans	—		—		—		11		—		—
Subtotal	3,830		4,089		—		5,963		271		218
With an allowance recorded:
Mortgage loans:
One- to four-family	—		—		—		721		50		38
Commercial	1,906		1,906		26		3,326		182		144
Land	822		881		125		666		35		29
Consumer loans:
Home equity and second mortgage	434		434		325		530		29		26
Other	—		—		—		17		—		—
Subtotal	3,162		3,221		476		5,260		296		237
Total:
Mortgage loans:
One- to four-family	1,443		1,589		—		1,829		118		100
Commercial	3,873		3,873		26		7,227		370		287
Construction – custom and owner/builder	—		—		—		147		7		7
Land	1,119		1,291		125		1,178		43		35
Consumer loans:
Home equity and second mortgage	557		557		325		814		29		26
Other	—		—		—		17		—		—
Commercial business loans	—		—		—		11		—		—
Total	$	6,992	$	7,310	$	476	$	11,223	$	567	$	455

______________________________________________

(1) For the year ended September 30, 2017.

A troubled debt restructured loan ("TDR") is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider.  Examples of such concessions 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 rates; a reduction in the face amount of the debt; a reduction in the accrued interest; or re-amortizations, extensions, deferrals and renewals.  TDRs are considered impaired and are individually evaluated for impairment.  TDRs are classified as non-accrual (and considered to be non-performing) unless they have been performing in accordance with modified terms for a period of at least six months. The Company had $3.13 million and $3.60 million in TDRs included in impaired loans at March 31, 2018 and September 30, 2017, respectively, and had no commitments at these dates to lend additional funds on these loans.  The allowance for loan losses allocated to TDRs at March 31, 2018 and September 30, 2017 was $0 and $10,000, respectively. There were no TDRs for which there was a payment default within the first 12 months of the modification during the six months ended March 31, 2018.

The following tables set forth information with respect to the Company’s TDRs by interest accrual status as of March 31, 2018 and September 30, 2017 (dollars in thousands):

	March 31, 2018
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	516	$	—	$	516
Commercial	2,208		—		2,208
Land	246		155		401
Total	$	2,970	$	155	$	3,125

	September 30, 2017
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	569	$	—	$	569
Commercial	2,219		—		2,219
Land	554		253		807
Total	$	3,342	$	253	$	3,595

There was one new TDR during the six months endedMarch 31, 2018 as a result of a reduction in the face amount of the debt on a land loan. This TDR had a pre-modification balance of $214,000, a post-modification balance of $155,000 and a balance at March 31, 2018 of $155,000. There were no new TDRs during the year ended September 30, 2017.