Loans Receivable And Allowance For Loan Losses

3 Months Ended

Dec. 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 December 31, 2018 and September 30, 2018 (dollars in thousands):



	December 31, 2018				September 30, 2018
	Amount		Percent		Amount		Percent
Mortgage loans:
One- to four-family (1)	$	130,219	13.4	%	$	115,941	14.1	%
Multi-family	72,076		7.4		61,928		7.5
Commercial	426,144		43.9		345,113		42.0
Construction - custom and owner/builder	119,214		12.3		119,555		14.6
Construction - speculative one- to four-family	17,934		1.9		15,433		1.9
Construction - commercial	42,416		4.4		39,590		4.8
Construction - multi-family	25,645		2.6		10,740		1.3
Construction - land development	10,578		1.1		3,040		0.4
Land	22,734		2.3		25,546		3.1
Total mortgage loans	866,960		89.3		736,886		89.8

Consumer loans:
Home equity and second mortgage	40,468		4.2		37,341		4.5
Other	4,443		0.5		3,515		0.5
Total consumer loans	44,911		4.7		40,856		5.0

Commercial business loans	58,202		6.0		43,053		5.2

Total loans receivable	970,073		100.0	%	820,795		100.0	%
Less:
Undisbursed portion of construction loans in process	100,595				83,237
Deferred loan origination fees, net	2,875				2,637
Allowance for loan losses	9,533				9,530
	113,003				95,404
Loans receivable, net	$	857,070			$	725,391
_____________________________
(1) Does not include one- to four-family loans held for sale totaling $2,988 and $1,785 at December 31, 2018 and September 30, 2018, respectively.

Allowance for Loan Losses

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



	Three Months Ended December 31, 2018
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	1,086	$	73		$	—		$	—	$	1,159
Multi-family	433		16			—			—		449
Commercial	4,248		(9		)	—			—		4,239
Construction – custom and owner/builder	671		(28		)	—			—		643
Construction – speculative one- to four-family	178		28			—			—		206
Construction – commercial	563		(177		)	—			—		386
Construction – multi-family	135		74			—			—		209
Construction – land development	49		94			—			—		143
Land	844		(91		)	—			4		757
Consumer loans:
Home equity and second mortgage	649		17			—			—		666
Other	117		(15		)	(2		)	1		101
Commercial business loans	557		18			—			—		575
Total	$	9,530	$	—		$	(2	)	$	5	$	9,533



	Three Months Ended December 31, 2017
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	1,082	$	43		$	—		$	—	$	1,125
Multi-family	447		(17		)	—			—		430
Commercial	4,184		(91		)	—			—		4,093
Construction – custom and owner/builder	699		89			—			—		788
Construction – speculative one- to four-family	128		(61		)	—			8		75
Construction – commercial	303		93			—			—		396
Construction – multi-family	173		55			—			—		228
Land	918		(142		)	—			4		780
Consumer loans:
Home equity and second mortgage	983		(25		)	—			—		958
Other	121		8			(1		)	1		129
Commercial business loans	515		48			—			—		563
Total	$	9,553	$	—		$	(1	)	$	13	$	9,565

The following tables present information on the loans evaluated individually and collectively for impairment in the allowance for loan losses by portfolio segment at December 31, 2018 and September 30, 2018 (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
December 31, 2018
Mortgage loans:
One- to four-family	$	—	$	1,159	$	1,159	$	1,014	$	129,205	$	130,219
Multi-family	—		449		449		—		72,076		72,076
Commercial	—		4,239		4,239		2,436		423,708		426,144
Construction – custom and owner/builder	—		643		643		—		64,313		64,313
Construction – speculative one- to four-family	—		206		206		—		9,221		9,221
Construction – commercial	—		386		386		—		25,883		25,883
Construction – multi-family	—		209		209		—		9,333		9,333
Construction – land development	—		143		143		—		6,442		6,442
Land	79		678		757		396		22,338		22,734
Consumer loans:
Home equity and second mortgage	—		666		666		386		40,082		40,468
Other	—		101		101		—		4,443		4,443
Commercial business loans	58		517		575		299		57,903		58,202
Total	$	137	$	9,396	$	9,533	$	4,531	$	864,947	$	869,478


September 30, 2018
Mortgage loans:
One- to four-family	$	—	$	1,086	$	1,086	$	1,054	$	114,887	$	115,941
Multi-family	—		433		433		—		61,928		61,928
Commercial	—		4,248		4,248		2,446		342,667		345,113
Construction – custom and owner/builder	—		671		671		—		67,024		67,024
Construction – speculative one- to four-family	—		178		178		—		7,107		7,107
Construction – commercial	—		563		563		—		23,440		23,440
Construction – multi-family	—		135		135		—		5,983		5,983
Construction – land development	—		49		49		—		1,567		1,567
Land	34		810		844		243		25,303		25,546
Consumer loans:
Home equity and second mortgage	—		649		649		359		36,982		37,341
Other	—		117		117		—		3,515		3,515
Commercial business loans	63		494		557		170		42,883		43,053
Total	$	97	$	9,433	$	9,530	$	4,272	$	733,286	$	737,558

The following tables present an analysis of loans by aging category and portfolio segment at December 31, 2018 and September 30, 2018 (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
December 31, 2018
Mortgage loans:
One- to four-family	$	—	$	—	$	509	$	—	$	509	$	129,710	$	130,219
Multi-family	—		—		—		—		—		72,076		72,076
Commercial	317		776		—		—		1,093		425,051		426,144
Construction – custom and owner/builder	—		—		—		—		—		64,313		64,313
Construction – speculative one- to four- family	—		—		—		—		—		9,221		9,221
Construction – commercial	—		—		—		—		—		25,883		25,883
Construction – multi-family	—		—		—		—		—		9,333		9,333
Construction – land development	228		—		—		—		228		6,214		6,442
Land	—		108		396		—		504		22,230		22,734
Consumer loans:
Home equity and second mortgage	—		37		386		—		423		40,045		40,468
Other	10		16		—		—		26		4,417		4,443
Commercial business loans	174		—		299		—		473		57,729		58,202
Total	$	729	$	937	$	1,590	$	—	$	3,256	$	866,222	$	869,478


September 30, 2018
Mortgage loans:
One- to four-family	$	557	$	—	$	545	$	—	$	1,102	$	114,839	$	115,941
Multi-family	—		—		—		—		—		61,928		61,928
Commercial	574		—		—		—		574		344,539		345,113
Construction – custom and owner/ builder	—		—		—		—		—		67,024		67,024
Construction – speculative one- to four- family	—		—		—		—		—		7,107		7,107
Construction – commercial	—		—		—		—		—		23,440		23,440
Construction – multi-family	—		—		—		—		—		5,983		5,983
Construction – land development	—		—		—		—		—		1,567		1,567
Land	40		—		243		—		283		25,263		25,546
Consumer loans:
Home equity and second mortgage	42		—		359		—		401		36,940		37,341
Other	10		16		—		—		26		3,489		3,515
Commercial business loans	—		—		170		—		170		42,883		43,053
Total	$	1,223	$	16	$	1,317	$	—	$	2,556	$	735,002	$	737,558

______________________

(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 December 31, 2018 and September 30, 2018, there were no loans classified as loss.

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



	Loan Grades
December 31, 2018	Pass		Watch		Special Mention		Substandard		Total
Mortgage loans:
One- to four-family	$	127,116	$	707	$	574	$	1,822	$	130,219
Multi-family	72,076		—		—		—		72,076
Commercial	416,329		8,332		649		834		426,144
Construction – custom and owner/builder	64,094		219		—		—		64,313
Construction – speculative one- to four-family	9,221		—		—		—		9,221
Construction – commercial	25,883		—		—		—		25,883
Construction – multi-family	9,333		—		—		—		9,333
Construction – land development	6,442		—		—		—		6,442
Land	20,116		979		1,243		396		22,734
Consumer loans:
Home equity and second mortgage	39,802		82		—		584		40,468
Other	4,409		34		—		—		4,443
Commercial business loans	57,735		119		49		299		58,202
Total	$	852,556	$	10,472	$	2,515	$	3,935	$	869,478


September 30, 2018
Mortgage loans:
One- to four-family	$	113,148	$	882	$	581	$	1,330	$	115,941
Multi-family	61,928		—		—		—		61,928
Commercial	334,908		8,375		988		842		345,113
Construction – custom and owner/builder	66,720		304		—		—		67,024
Construction – speculative one- to four-family	7,107		—		—		—		7,107
Construction – commercial	23,440		—		—		—		23,440
Construction – multi-family	5,983		—		—		—		5,983
Construction – land development	1,567		—		—		—		1,567
Land	22,810		988		1,505		243		25,546
Consumer loans:
Home equity and second mortgage	36,697		82		—		562		37,341
Other	3,480		—		—		35		3,515
Commercial business loans	42,812		22		49		170		43,053
Total	$	720,600	$	10,653	$	3,123	$	3,182	$	737,558

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 estimated net realizable value 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 December 31, 2018 and for the three months then ended (dollars in thousands):



	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		Year to Date ("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	$	1,014	$	1,161	$	—	$	1,034	$	18	$	16
Commercial	2,436		2,436		—		2,441		40		31
Land	—		78		—		45		—		—
Consumer loans:
Home equity and second mortgage	386		386		—		373		—		—
Commercial business loans	114		114		—		57		—		—
Subtotal	3,950		4,175		—		3,950		58		47

With an allowance recorded:
Mortgage loans:
Land	396		396		79		198		—		—
Consumer loans:
Home equity and second mortgage	—		—		—		77		—		—
Commercial business loans	185		185		58		178		—		—
Subtotal	581		581		137		453		—		—

Total:
Mortgage loans:
One- to four-family	1,014		1,161		—		1,034		18		16
Commercial	2,436		2,436		—		2,441		40		31
Land	396		474		79		243		—		—
Consumer loans:
Home equity and second mortgage	386		386		—		450		—		—
Commercial business loans	299		299		58		235		—		—
Total	$	4,531	$	4,756	$	137	$	4,403	$	58	$	47

______________________________________________


(1)	For the three months ended December 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, 2018 (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	$	1,054	$	1,200	$	—	$	1,422	$	80	$	69
Commercial	2,446		2,446		—		2,389		121		93
Land	90		195		—		283		11		10
Consumer loans:
Home equity and second mortgage	359		359		—		210		3		3
Subtotal	3,949		4,200		—		4,304		215		175

With an allowance recorded:
Mortgage loans:
One- to four-family	—		—		—		9		—		—
Commercial	—		—		—		760		28		21
Land	153		153		34		383		9		8
Consumer loans:
Home equity and second mortgage	—		—		—		310		16		13
Commercial business loans	170		170		63		141		—		—
Subtotal	323		323		97		1,603		53		42
Total:
Mortgage loans:
One- to four-family	1,054		1,200		—		1,431		80		69
Commercial	2,446		2,446		—		3,149		149		114
Land	243		348		34		666		20		18
Consumer loans:
Home equity and second mortgage	359		359		—		520		19		16
Commercial business loans	170		170		63		141		—		—
Total	$	4,272	$	4,523	$	97	$	5,907	$	268	$	217

______________________________________________

(1) For the year ended September 30, 2018.

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 $3.25 million and $3.28 million in TDRs included in impaired loans at December 31, 2018 and September 30, 2018, respectively, and had no commitments at these dates to lend additional funds on these loans. The allowance for loan losses allocated to TDRs at December 31, 2018 and September 30, 2018 was $84,000 and $97,000, respectively. There were no TDRs for which there was a payment default within the first 12 months of the modification during the three months ended December 31, 2018.

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



	December 31, 2018
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	505	$	146	$	651
Commercial	2,436		—		2,436
Commercial business loans	—		162		162
Total	$	2,941	$	308	$	3,249



	September 30, 2018
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	509	$	—	$	509
Commercial	2,446		—		2,446
Land	—		153		153
Commercial business loans	—		170		170
Total	$	2,955	$	323	$	3,278

There were no new TDRs during the three months ended December 31, 2018.

There were three new TDRs for the year ended September 30, 2018. The following table sets forth information with respect to the Company's TDRs, by portfolio segment, during the year ended September 30, 2018 (dollars in thousands):



2018	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		End of Period Balance
Land loans (1)	1	$	244	$	155	$	153
Commercial business loans (2)	2	183		183		170
Total	3	$	427	$	338	$	323

(1) Modification was a result of a reduction in principal balance.
(2) Modifications were a result of reduction in monthly payment amounts.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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