Loans Receivable And Allowance For Loan Losses

6 Months Ended

Mar. 31, 2019

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 at March 31, 2019 are reported net of unamortized discounts totaling $1.64 million.

Loans receivable by portfolio segment consisted of the following at March 31, 2019 and September 30, 2018 (dollars in thousands):



	March 31, 2019				September 30, 2018
	Amount		Percent		Amount		Percent
Mortgage loans:
One- to four-family (1)	$	130,413	13.3	%	$	115,941	14.1	%
Multi-family	74,816		7.6		61,928		7.5
Commercial	417,223		42.6		345,113		42.0
Construction - custom and owner/builder	120,789		12.3		119,555		14.6
Construction - speculative one- to four-family	20,014		2.0		15,433		1.9
Construction - commercial	42,157		4.4		39,590		4.8
Construction - multi-family	29,399		3.0		10,740		1.3
Construction - land development	8,782		0.9		3,040		0.4
Land	22,471		2.3		25,546		3.1
Total mortgage loans	866,064		88.4		736,886		89.8

Consumer loans:
Home equity and second mortgage	41,609		4.2		37,341		4.5
Other	4,605		0.5		3,515		0.5
Total consumer loans	46,214		4.7		40,856		5.0

Commercial business loans	68,074		6.9		43,053		5.2

Total loans receivable	980,352		100.0	%	820,795		100.0	%
Less:
Undisbursed portion of construction loans in process	94,471				83,237
Deferred loan origination fees, net	2,856				2,637
Allowance for loan losses	9,741				9,530
	107,068				95,404
Loans receivable, net	$	873,284			$	725,391
_____________________________
(1) Does not include one- to four-family loans held for sale totaling $3,068 and $1,785 at March 31, 2019 and September 30, 2018, respectively.

Allowance for Loan Losses

The following tables set forth information for the three and six months ended March 31, 2019 and 2018 regarding activity in the allowance for loan losses by portfolio segment (dollars in thousands):



	Three Months Ended March 31, 2019
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	1,159	$	(72	)	$	—		$	67	$	1,154
Multi-family	449		21			—			—		470
Commercial	4,239		(267		)	—			150		4,122
Construction – custom and owner/builder	643		23			—			—		666
Construction – speculative one- to four-family	206		43			—			—		249
Construction – commercial	386		(2		)	—			—		384
Construction – multi-family	209		63			—			—		272
Construction – land development	143		101			—			—		244
Land	757		(112		)	—			4		649
Consumer loans:
Home equity and second mortgage	666		5			(4		)	—		667
Other	101		11			(1		)	1		112
Commercial business loans	575		186			(9		)	—		752
Total	$	9,533	$	—		$	(14	)	$	222	$	9,741



	Six Months Ended March 31, 2019
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,086	$	1		$	—		$	67	$	1,154
Multi-family	433		37			—			—		470
Commercial	4,248		(276		)	—			150		4,122
Construction – custom and owner/builder	671		(5		)	—			—		666
Construction – speculative one- to four-family	178		71			—			—		249
Construction – commercial	563		(179		)	—			—		384
Construction – multi-family	135		137			—			—		272
Construction – land development	49		195			—			—		244
Land	844		(203		)	—			8		649
Consumer loans:
Home equity and second mortgage	649		22			(4		)	—		667
Other	117		(4		)	(3		)	2		112
Commercial business loans	557		204			(9		)	—		752
Total	$	9,530	$	—		$	(16	)	$	227	$	9,741



	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

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, 2019 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
March 31, 2019
Mortgage loans:
One- to four-family	$	—	$	1,154	$	1,154	$	1,069	$	129,344	$	130,413
Multi-family	—		470		470		—		74,816		74,816
Commercial	—		4,122		4,122		3,271		413,952		417,223
Construction – custom and owner/builder	—		666		666		—		66,622		66,622
Construction – speculative one- to four-family	—		249		249		—		11,296		11,296
Construction – commercial	—		384		384		—		27,752		27,752
Construction – multi-family	—		272		272		—		13,595		13,595
Construction – land development	—		244		244		—		7,405		7,405
Land	77		572		649		461		22,010		22,471
Consumer loans:
Home equity and second mortgage	—		667		667		342		41,267		41,609
Other	9		103		112		15		4,590		4,605
Commercial business loans	145		607		752		515		67,559		68,074
Total	$	231	$	9,510	$	9,741	$	5,673	$	880,208	$	885,881


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 March 31, 2019 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
March 31, 2019
Mortgage loans:
One- to four-family	$	—	$	—	$	568	$	—	$	568	$	129,845	$	130,413
Multi-family	—		—		—		—		—		74,816		74,816
Commercial	456		—		844		—		1,300		415,923		417,223
Construction – custom and owner/builder	—		—		—		—		—		66,622		66,622
Construction – speculative one- to four- family	—		—		—		—		—		11,296		11,296
Construction – commercial	—		—		—		—		—		27,752		27,752
Construction – multi-family	—		—		—		—		—		13,595		13,595
Construction – land development	228		—		—		—		228		7,177		7,405
Land	11		—		461		—		472		21,999		22,471
Consumer loans:
Home equity and second mortgage	—		36		342		—		378		41,231		41,609
Other	—		—		15		—		15		4,590		4,605
Commercial business loans	99		—		515		—		614		67,460		68,074
Total	$	794	$	36	$	2,745	$	—	$	3,575	$	882,306	$	885,881


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 March 31, 2019 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 March 31, 2019 and September 30, 2018 (dollars in thousands):



	Loan Grades
March 31, 2019	Pass		Watch		Special Mention		Substandard		Total
Mortgage loans:
One- to four-family	$	127,202	$	699	$	567	$	1,945	$	130,413
Multi-family	74,816		—		—		—		74,816
Commercial	406,675		8,285		696		1,567		417,223
Construction – custom and owner/builder	66,391		231		—		—		66,622
Construction – speculative one- to four-family	11,296		—		—		—		11,296
Construction – commercial	27,752		—		—		—		27,752
Construction – multi-family	13,595		—		—		—		13,595
Construction – land development	7,178		—		—		227		7,405
Land	19,806		968		1,236		461		22,471
Consumer loans:
Home equity and second mortgage	40,994		79		—		536		41,609
Other	4,556		34		—		15		4,605
Commercial business loans	66,766		274		131		903		68,074
Total	$	867,027	$	10,570	$	2,630	$	5,654	$	885,881

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 March 31, 2019 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	$	1,069	$	1,150	$	—	$	1,042	$	1,046	$	17	$	35	$	16	$	32
Commercial	3,271		3,271		—		2,854		2,718		40		80		32		62
Land	68		141		—		34		53		—		—		—		—
Consumer loans:
Home equity and second mortgage	342		342		—		364		362		—		—		—		—
Commercial business loans	205		213		—		160		106		2		2		2		2
Subtotal	4,955		5,117		—		4,454		4,285		59		117		50		96

With an allowance recorded:
Mortgage loans:
Land	393		393		77		395		263		—		—		—		—
Consumer loans:
Home equity and second mortgage	—		—		—		—		51		—		—		—		—
Other	15		15		9		8		5		—		—		—		—
Commercial business loans	310		310		145		248		222		—		—		—		—
Subtotal	718		718		231		651		541		—		—		—		—

Total:
Mortgage loans:
One- to four-family	1,069		1,150		—		1,042		1,046		17		35		16		32
Commercial	3,271		3,271		—		2,854		2,718		40		80		32		62
Land	461		534		77		429		316		—		—		—		—
Consumer loans:
Home equity and second mortgage	342		342		—		364		413		—		—		—		—
Other	15		15		9		8		5		—		—		—		—
Commercial business loans	515		523		145		408		328		2		2		2		2
Total	$	5,673	$	5,835	$	231	$	5,105	$	4,826	$	59	$	117	$	50	$	96

______________________________________________


(1)	For the three months ended March 31, 2019.


(2)	For the six months ended March 31, 2019.

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 $3.23 million and $3.28 million in TDRs included in impaired loans at March 31, 2019 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 March 31, 2019 and September 30, 2018 was $78,000 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 six months ended March 31, 2019.

The following tables set forth information with respect to the Company’s TDRs by interest accrual status as of March 31, 2019 and September 30, 2018 (dollars in thousands):



	March 31, 2019
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	501	$	144	$	645
Commercial	2,427		—		2,427
Commercial business loans	—		155		155
Total	$	2,928	$	299	$	3,227



	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 six months ended March 31, 2019.

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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