LOANS AND LEASES RECEIVABLE, NET

Loans and Leases

Year-end loans and leases receivable were as follows:



	September 30, 2018			September 30, 2017
	(Dollars in Thousands)
National Lending
Commercial finance	$	1,509,849		$	255,308
Consumer finance	335,361			140,229
Tax services	1,073			192
Total National Lending	1,846,283			395,729
Community Banking
Commercial and multi-family real estate	748,579			585,510
1-4 family real estate	223,482			196,706
Agricultural	60,498			95,394
Commercial operating	42,311			30,718
Consumer	23,836			22,775
Total Community Banking	1,098,706			931,103
Total gross loans and leases receivable	2,944,989			1,326,832

Allowance for loan and lease losses	(13,040		)	(7,534		)
Net deferred loan origination fees	(250		)	(1,461		)
Total loans and leases receivable, net	$	2,931,699		$	1,317,837

Annual activity in the allowance for loan and lease losses was as follows:



Year ended September 30,	2018			2017			2016
	(Dollars in Thousands)
Beginning balance	$	7,534		$	5,635		$	6,255
Provision for loan and lease losses	29,433			10,589			4,605
Recoveries	2,037			307			147
Charge offs	(25,964		)	(8,997		)	(5,372		)
Ending balance	$	13,040		$	7,534		$	5,635

Allowance for loan and lease losses and recorded investment in loans and leases at September 30, 2018 and 2017 were as follows:



Allowance for loan and lease losses:	Beginning balance		Provision (recovery) for loan and lease losses			Charge offs			Recoveries		Ending balance
Year Ended September 30, 2018	(Dollars in Thousands)
National Lending
Commercial finance	$	800	$	1,976		$	(2,643	)	$	1,169	$	1,302
Consumer finance	—		5,113			(1,443		)	—		3,670
Tax services	5		21,344			(21,802		)	453		—
Total National Lending	805		28,433			(25,888		)	1,622		4,972
Community Banking
Commercial and multi-family real estate	2,670		3,377			—			—		6,047
1-4 family real estate	803		(168		)	(45		)	—		590
Agricultural	2,574		(1,769		)	—			411		1,216
Commercial operating	150		23			—			—		173
Consumer	6		64			(31		)	3		42
Total Community Banking	6,203		1,527			(76		)	414		8,068
Unallocated	527		(527		)	—			—		—
Total	7,534		29,433			(25,964		)	2,037		13,040



Allowance for loan and lease losses:	Beginning balance		Provision (recovery) for loan and lease losses			Charge offs			Recoveries		Ending balance
Year Ended September 30, 2017	(Dollars in Thousands)
National Lending
Commercial finance	$	589	$	776		$	(626	)	$	61	$	800
Consumer finance	—		—			—			—		—
Tax services	6		7,612			(7,842		)	229		5
Total National Lending	595		8,388			(8,468		)	290		805
Community Banking
Commercial and multi-family real estate	2,198		610			(138		)	—		2,670
1-4 family real estate	654		149			—			—		803
Agricultural	1,474		1,088			—			12		2,574
Commercial operating	110		425			(390		)	5		150
Consumer	51		(44		)	(1		)	—		6
Total Community Banking	4,487		2,228			(529		)	17		6,203
Unallocated	553		(26		)	—			—		527
Total	5,635		10,589			(8,997		)	307		7,534



	Allowance						Loans and Leases
Recorded Investment	Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Total		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Total
Year Ended September 30, 2018	(Dollars in Thousands)
National Lending
Commercial finance	$	588	$	714	$	1,302	$	13,612	$	1,496,237	$	1,509,849
Consumer finance	—		3,670		3,670		—		335,361		335,361
Tax services	—		—		—		—		1,073		1,073
Total National Lending	588		4,384		4,972		13,612		1,832,671		1,846,283
Community Banking
Commercial and multi-family real estate	—		6,047		6,047		405		748,174		748,579
1-4 family real estate	—		590		590		94		223,388		223,482
Agricultural	—		1,216		1,216		1,454		59,044		60,498
Commercial operating	—		173		173		46		42,265		42,311
Consumer	—		42		42		—		23,836		23,836
Total Community Banking	—		8,068		8,068		1,999		1,096,707		1,098,706
Total	588		12,452		13,040		15,611		2,929,378		2,944,989



	Allowance						Loans and Leases
Recorded Investment	Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Total		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Total
Year Ended September 30, 2017	(Dollars in Thousands)
National Lending
Commercial finance	$	—	$	800	$	800	$	—	$	255,308	$	255,308
Consumer finance	—		—		—		—		140,229		140,229
Tax services	—		5		5		—		192		192
Total National Lending	—		805		805		—		395,729		395,729
Community Banking
Commercial and multi-family real estate	—		2,670		2,670		1,109		584,401		585,510
1-4 family real estate	—		803		803		72		196,634		196,706
Agricultural	—		2,574		2,574		—		95,394		95,394
Commercial operating	—		150		150		—		30,718		30,718
Consumer	—		6		6		—		22,775		22,775
Total Community Banking	—		6,203		6,203		—		931,103		931,103
Unallocated	—		527		527		—		—		—
Total	—		7,534		7,534		1,181		1,325,651		1,326,832

The asset classification of loans and leases at September 30, 2018, and 2017, were as follows:



Asset Classification	Pass		Watch		Special Mention		Substandard		Total
Year Ended September 30, 2018	(Dollars in Thousands)
National Lending
Commercial finance	$	1,379,902	$	—	$	116,334	$	13,613	1,509,849
Consumer finance	335,361		—		—		—		335,361
Tax services	1,073		—		—		—		1,073
Total National Lending	1,716,336		—		116,334		13,613		1,846,283
Community Banking
Commercial and multi-family real estate	736,134		12,251		194		—		748,579
1-4 family real estate	222,883		281		239		79		223,482
Agricultural	42,292		2,447		4,872		10,887		60,498
Commercial operating	42,311		—		—		—		42,311
Consumer	23,580		256		—		—		23,836
Total Community Banking	1,067,200		15,235		5,305		10,966		1,098,706
Total Loans and Leases	$	2,783,536	$	15,235	$	121,639	$	24,579	$	2,944,989



Asset Classification	Pass		Watch		Special Mention		Substandard		Total
Year Ended September 30, 2017	(Dollars in Thousands)
National Lending
Commercial finance	$	255,308	$	—	$	—	$	—	255,308
Consumer finance	140,229		—		—		—		140,229
Tax services	192		—		—		—		192
Total National Lending	395,729		—		—		—		395,729
Community Banking
Commercial and multi-family real estate	574,730		10,200		201		379		585,510
1-4 family real estate	195,838		525		247		96		196,706
Agricultural	45,770		6,547		2,939		40,138		95,394
Commercial operating	30,718		—		—		—		30,718
Consumer	22,775		—		—		—		22,775
Total Community Banking	869,831		17,272		3,387		40,613		931,103
Total Loans and Leases	$	1,265,560	$	17,272	$	3,387	$	40,613	$	1,326,832

Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's regulator, the Office of the Comptroller of the Currency (the “OCC”), to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan classification and risk rating definitions are as follows:

Pass- A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.

Watch- A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.

Special Mention- Special mention assets are a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.

The adverse classifications are as follows:

Substandard- A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.

Doubtful- A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate.

Loss- A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

Loans and leases, or portions thereof, are charged off when collection of principal becomes doubtful. Generally, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for the purchased student loan portfolios, 120 days or more for consumer credit products and leases, and 90 days or more for community banking loans and commercial finance loans. Action is taken to charge off ERO loans if such loans have not been collected by the end of June and taxpayer advance loans if such loans have not been collected by the end of the calendar year. Non-accrual loans and troubled debt restructurings are generally considered impaired.

Past due loans and leases at September 30, 2018 and 2017 were as follows:



	Accruing and Non-accruing Loans and Leases						Non-performing Loans and Leases
Past Due Loans and Leases	30-59 Days Past Due	60-89 Days Past Due	> 89 Days Past Due	Total Past Due	Current	Total Loans and Leases Receivable	> 89 Days Past Due and Accruing	Non-accrual balance	Total
Year Ended September 30, 2018	(Dollars in Thousands)
National Lending
Commercial finance	20,708	3,702	5,996	30,406	1,479,443	1,509,849	3,801	2,864	6,665
Consumer finance	3,209	1,595	2,384	7,188	328,173	335,361	2,384	—	2,384
Tax services	—	—	1,073	1,073	—	1,073	1,073	—	1,073
Total National Lending	23,917	5,297	9,453	38,667	1,807,616	1,846,283	7,258	2,864	10,122
Community Banking
Commercial and multi-family real estate	—	—	—	—	748,579	748,579	—	—	—
1-4 family real estate	105	—	79	184	223,298	223,482	79	—	79
Agricultural	—	—	—	—	60,498	60,498	—	—	—
Commercial operating	—	—	—	—	42,311	42,311	—	—	—
Consumer	—	—	—	—	23,836	23,836	—	—	—
Total Community Banking	105	—	79	184	1,098,522	1,098,706	79	—	79
Total Loans and Leases	24,022	5,297	9,532	38,851	2,906,138	2,944,989	7,337	2,864	10,201



	Accruing and Non-accruing Loans and Leases												Non-performing Loans and Leases
Past Due Loans and Leases	30-59 Days Past Due		60-89 Days Past Due		> 89 Days Past Due		Total Past Due		Current		Total Loans and Leases Receivable		> 89 Days Past Due and Accruing		Non-accrual balance		Total
Year Ended September 30, 2017	(Dollars in Thousands)
National Lending
Commercial finance	$	1,509	$	2,442	$	1,205	$	5,156	$	250,152	$	255,308	$	1,205	$	—	$	1,205
Consumer finance	2,503		541		1,387		4,431		135,798		140,229		1,387		—		1,387
Tax services	—		—		—		—		192		192		—		—		—
Total National Lending	4,012		2,983		2,592		9,587		386,142		395,729		2,592		—		2,592
Community Banking
Commercial and multi-family real estate	295		—		390		685		584,825		585,510		—		685		685
1-4 family real estate	370		79		—		449		196,257		196,706		—		—		—
Agricultural	—		—		34,295		34,295		61,099		95,394		34,295		—		34,295
Commercial operating	—		—		—		—		30,718		30,718		—		—		—
Consumer	9		17		19		45		22,730		22,775		19		—		19
Total Community Banking	674		96		34,704		35,474		895,629		931,103		34,314		685		34,999
Total Loans and Leases	$	4,686	$	3,079	$	37,296	$	45,061	$	1,281,771	$	1,326,832	$	36,906	$	685	$	37,591

Non-accruing loans and leases were $2.9 million and $0.7 million at September 30, 2018 and 2017, respectively. There were $7.3 million and $36.9 million in accruing loans and leases delinquent 90 days or more at September 30, 2018 and 2017, respectively. For the year ended September 30, 2018, gross interest income which would have been recorded had the non-accruing loans and leases been current in accordance with their original terms amounted to approximately $0.1 million, none of which was included in interest income.

When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often, this is associated with a delay or shortfall in scheduled payments, as described above.

Impaired loans and leases at September 30, 2018 and 2017 were as follows:



September 30, 2018	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans and leases without a specific valuation allowance	(Dollars in Thousands)
National Lending
Commercial finance	$	8,199	$	8,529	$	—
Total National Lending	8,199		8,529		—
Community Banking
Commercial and multi-family real estate	405		405		—
1-4 family real estate	94		94		—
Agricultural	1,454		1,454		—
Consumer	46		46		—
Total Community Banking	1,999		1,999		—
Total	10,198		10,528		—
Loans and leases with a specific valuation allowance
National Lending
Commercial finance	$	5,413	$	5,663	$	588
Total National Lending	5,413		5,663		588
Total	5,413		5,413		588



September 30, 2017	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans and leases without a specific valuation allowance	(Dollars in Thousands)
Community Banking
Commercial and multi-family real estate	$	1,109	$	1,109	$	—
1-4 family real estate	72		72		—
Total Community Banking	1,181		1,181		—
Total	$	1,181	$	1,181	$	—
Loans and leases with a specific valuation allowance
Total	$	—	$	—	$	—

Cash interest collected on impaired loans and leases was not material during the years ended September 30, 2018 and 2017.

The following table provides the average recorded investment in impaired loans and leases for the years ended September 30, 2018 and 2017.



	Year Ended September 30,
	2018		2017
	Average Recorded Investment		Average Recorded Investment
	(Dollars in Thousands)
National Lending
Commercial finance	$	1,134	$	—
Total National Lending	1,134		—
Community Banking
Commercial and multi-family real estate	673		883
1-4 family real estate	159		176
Agricultural	1,652		414
Commercial operating	—		202
Consumer	67		—
Total Community Banking	2,551		1,675
Total loans and leases	3,685		1,675

For economic or legal reasons relating to a borrower’s financial difficulties, the Company may grant to a borrower a concession for other than an insignificant period of time that the Company would not otherwise grant. The Company classifies these related loans and leases as troubled debt restructurings (“TDR”) which may involve forgiving a portion of interest or principal on existing loans or leases, making loans or leases at a rate materially less than current market rates, or extending the term of the loan or lease.

For the year ended September 30, 2018, the Company had 10 Community Banking loans with a balance of $2.0 million, and 11 National Lending loans and leases, with a balance of $2.5 million classified as TDRs. For the year ended September 30, 2017, the Company had four Community Banking loans, with a balance of $0.5 million classified as TDRs. All of the TDRs that were modified during the year ended September 30, 2018 were modified to extend the term of the loan.

During the year ended September 30, 2018, the Company had one Community Banking loan with a balance of $0.1 million that was modified in a TDR within the previous 12 months and for which there was a payment default. For the year ended September 30, 2017, there were no TDR loans for which there was a payment default. The Company had no commitments to lend additional funds on loans or leases with terms modified in a TDR at September 30, 2018 and 2017.