Loans Receivable And Allowance For Loan Losses

6 Months Ended

Mar. 31, 2020

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, 2020 are reported net of unamortized discounts totaling $1.13 million.

Loans receivable by portfolio segment consisted of the following at March 31, 2020 and September 30, 2019 (dollars in thousands):



	March 31, 2020				September 30, 2019
	Amount		Percent		Amount		Percent
Mortgage loans:
One- to four-family (1)	$	125,285	12.4	%	$	132,661	13.4	%
Multi-family	81,298		8.1		76,036		7.7
Commercial	444,276		44.1		419,117		42.3
Construction - custom and owner/builder	119,175		11.8		128,848		13.0
Construction - speculative one- to four-family	14,679		1.5		16,445		1.7
Construction - commercial	37,446		3.6		39,566		4.0
Construction - multi-family	34,026		3.4		36,263		3.6
Construction - land development	5,774		0.6		2,404		0.2
Land	29,333		2.9		30,770		3.1
Total mortgage loans	891,292		88.4		882,110		89.0

Consumer loans:
Home equity and second mortgage	38,972		3.9		40,190		4.1
Other	3,829		0.4		4,312		0.4
Total consumer loans	42,801		4.3		44,502		4.5

Commercial business loans	73,622		7.3		64,764		6.5

Total loans receivable	1,007,715		100.0	%	991,376		100.0	%
Less:
Undisbursed portion of construction loans in process	85,474				92,226
Deferred loan origination fees, net	2,694				2,798
Allowance for loan losses	11,890				9,690
	100,058				104,714
Loans receivable, net	$	907,657			$	886,662
_____________________________
(1) Does not include one- to four-family loans held for sale totaling $5,798 and $6,071 at March 31, 2020 and September 30, 2019, respectively.

Allowance for Loan Losses

The following tables set forth information for the three and six months ended March 31, 2020 and 2019 regarding activity in the allowance for loan losses by portfolio segment (dollars in thousands):



	Three Months Ended March 31, 2020
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	1,065	$	83		$	—		$	1	$	1,149
Multi-family	499		96			—			—		595
Commercial	4,410		1,351			—			1		5,762
Construction – custom and owner/builder	754		(57		)	—			—		697
Construction – speculative one- to four-family	248		(44		)	—			—		204
Construction – commercial	403		20			—			—		423
Construction – multi-family	333		61			—			—		394
Construction – land development	48		32			—			—		80
Land	654		19			—			5		678
Consumer loans:
Home equity and second mortgage	609		47			—			—		656
Other	87		(10		)	(1		)	2		78
Commercial business loans	772		402			—			—		1,174
Total	$	9,882	$	2,000		$	(1	)	$	9	$	11,890



	Six Months Ended March 31, 2020
	Beginning Allowance		Provision for (Recapture of) Loan Losses			Charge- offs			Recoveries		Ending Allowance
Mortgage loans:
One-to four-family	$	1,167	$	(21	)	$	—		$	3	$	1,149
Multi-family	481		114			—			—		595
Commercial	4,154		1,603			—			5		5,762
Construction – custom and owner/builder	755		(63		)	—			5		697
Construction – speculative one- to four-family	212		(8		)	—			—		204
Construction – commercial	338		85			—			—		423
Construction – multi-family	375		19			—			—		394
Construction – land development	67		13			—			—		80
Land	697		(29		)	—			10		678
Consumer loans:
Home equity and second mortgage	623		33			—			—		656
Other	99		(13		)	(11		)	3		78
Commercial business loans	722		467			(15		)	—		1,174
Total	$	9,690	$	2,200		$	(26	)	$	26	$	11,890



	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

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, 2020 and September 30, 2019 (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, 2020
Mortgage loans:
One- to four-family	$	—	$	1,149	$	1,149	$	1,426	$	123,859	$	125,285
Multi-family	—		595		595		—		81,298		81,298
Commercial	—		5,762		5,762		3,339		440,937		444,276
Construction – custom and owner/builder	—		697		697		—		69,298		69,298
Construction – speculative one- to four-family	—		204		204		—		9,507		9,507
Construction – commercial	—		423		423		—		25,803		25,803
Construction – multi-family	—		394		394		—		18,753		18,753
Construction – land development	—		80		80		—		2,265		2,265
Land	25		653		678		193		29,140		29,333
Consumer loans:
Home equity and second mortgage	—		656		656		581		38,391		38,972
Other	—		78		78		11		3,818		3,829
Commercial business loans	64		1,110		1,174		543		73,079		73,622
Total	$	89	$	11,801	$	11,890	$	6,093	$	916,148	$	922,241


September 30, 2019
Mortgage loans:
One- to four-family	$	—	$	1,167	$	1,167	$	1,192	$	131,469	$	132,661
Multi-family	—		481		481		—		76,036		76,036
Commercial	—		4,154		4,154		3,190		415,927		419,117
Construction – custom and owner/builder	—		755		755		—		75,411		75,411
Construction – speculative one- to four-family	—		212		212		—		10,779		10,779
Construction – commercial	—		338		338		—		24,051		24,051
Construction – multi-family	—		375		375		—		19,256		19,256
Construction – land development	—		67		67		—		1,803		1,803
Land	27		670		697		204		30,566		30,770
Consumer loans:
Home equity and second mortgage	—		623		623		603		39,587		40,190
Other	17		82		99		23		4,289		4,312
Commercial business loans	128		594		722		725		64,039		64,764
Total	$	172	$	9,518	$	9,690	$	5,937	$	893,213	$	899,150

The following tables present an analysis of loans by aging category and portfolio segment at March 31, 2020 and September 30, 2019 (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, 2020
Mortgage loans:
One- to four-family	$	—	$	—	$	941	$	—	$	941	$	124,344	$	125,285
Multi-family	—		—		—		—		—		81,298		81,298
Commercial	91		—		947		—		1,038		443,238		444,276
Construction – custom and owner/builder	—		—		—		—		—		69,298		69,298
Construction – speculative one- to four- family	—		—		—		—		—		9,507		9,507
Construction – commercial	—		—		—		—		—		25,803		25,803
Construction – multi-family	—		—		—		—		—		18,753		18,753
Construction – land development	—		—		—		—		—		2,265		2,265
Land	—		—		193		—		193		29,140		29,333
Consumer loans:
Home equity and second mortgage	—		—		581		—		581		38,391		38,972
Other	1		—		11		—		12		3,817		3,829
Commercial business loans	125		—		543		—		668		72,954		73,622
Total	$	217	$	—	$	3,216	$	—	$	3,433	$	918,808	$	922,241


September 30, 2019
Mortgage loans:
One- to four-family	$	—	$	286	$	699	$	—	$	985	$	131,676	$	132,661
Multi-family	—		—		—		—		—		76,036		76,036
Commercial	94		218		779		—		1,091		418,026		419,117
Construction – custom and owner/ builder	—		—		—		—		—		75,411		75,411
Construction – speculative one- to four- family	—		—		—		—		—		10,779		10,779
Construction – commercial	—		—		—		—		—		24,051		24,051
Construction – multi-family	—		—		—		—		—		19,256		19,256
Construction – land development	—		—		—		—		—		1,803		1,803
Land	5		193		204		—		402		30,368		30,770
Consumer loans:
Home equity and second mortgage	94		—		603		—		697		39,493		40,190
Other	—		—		23		—		23		4,289		4,312
Commercial business loans	—		2		725		—		727		64,037		64,764
Total	$	193	$	699	$	3,033	$	—	$	3,925	$	895,225	$	899,150

______________________

(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, 2020 and September 30, 2019, 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, 2020 and September 30, 2019 (dollars in thousands):



	Loan Grades
March 31, 2020	Pass		Watch		Special Mention		Substandard		Total
Mortgage loans:
One- to four-family	$	122,490	$	1,286	$	557	$	952	$	125,285
Multi-family	81,298		—		—		—		81,298
Commercial	433,461		8,667		668		1,480		444,276
Construction – custom and owner/builder	68,256		1,042		—		—		69,298
Construction – speculative one- to four-family	9,507		—		—		—		9,507
Construction – commercial	25,803		—		—		—		25,803
Construction – multi-family	18,753		—		—		—		18,753
Construction – land development	2,133		—		—		132		2,265
Land	27,013		1,539		588		193		29,333
Consumer loans:
Home equity and second mortgage	38,402		56		—		514		38,972
Other	3,785		33		—		11		3,829
Commercial business loans	72,715		231		79		597		73,622
Total	$	903,616	$	12,854	$	1,892	$	3,879	$	922,241

September 30, 2019
Mortgage loans:
One- to four-family	$	129,748	$	296	$	562	$	2,055	$	132,661
Multi-family	76,036		—		—		—		76,036
Commercial	405,165		11,944		683		1,325		419,117
Construction – custom and owner/builder	75,178		233		—		—		75,411
Construction – speculative one- to four-family	10,779		—		—		—		10,779
Construction – commercial	24,051		—		—		—		24,051
Construction – multi-family	19,256		—		—		—		19,256
Construction – land development	1,659		—		—		144		1,803
Land	28,390		952		1,217		211		30,770
Consumer loans:
Home equity and second mortgage	39,364		41		—		785		40,190
Other	4,257		33		—		22		4,312
Commercial business loans	63,669		232		85		778		64,764
Total	$	877,552	$	13,731	$	2,547	$	5,320	$	899,150

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, 2020 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	$	941	$	984	$	—	$	1,186	$	1,188	$	20	$	25	$	18	$	23
Commercial	3,339		3,339		—		3,240		3,223		52		105		42		73
Land	57		111		—		58		60		—		—		—		—
Consumer loans:
Home equity and second mortgage	581		581		—		581		588		—		—		—		—
Other	11		11		—		6		4		—		—		—		—
Commercial business loans	144		262		—		164		172		—		—		—		—
Subtotal	5,073		5,288		—		5,235		5,235		72		130		60		96

With an allowance recorded:
Mortgage loans:
One- to four-family	485		485		—		243		162		—		—		—		—
Land	136		136		25		138		139		—		—		—		—
Consumer loans:
Other	—		—		—		6		12		—		—		—		—
Commercial business loans	399		399		64		409		451		—		—		—		—
Subtotal	1,020		1,020		89		796		764		—		—		—		—

Total:
Mortgage loans:
One- to four-family	1,426		1,469		—		1,429		1,350		20		25		18		23
Commercial	3,339		3,339		—		3,240		3,223		52		105		42		73
Land	193		247		25		196		199		—		—		—		—
Consumer loans:
Home equity and second mortgage	581		581		—		581		588		—		—		—		—
Other	11		11		—		12		16		—		—		—		—
Commercial business loans	543		661		64		573		623		—		—		—		—
Total	$	6,093	$	6,308	$	89	$	6,031	$	5,999	$	72	$	130	$	60	$	96

______________________________________________


(1)	For the three months ended March 31, 2020.


(2)	For the six months ended March 31, 2020.



	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	$	1,192	$	1,236	$	—	$	1,110	$	71	$	62
Commercial	3,190		3,190		—		2,920		227		192
Land	63		126		—		100		3		3
Consumer loans:
Home equity and second mortgage	603		603		—		459		—		—
Commercial business loans	189		291		—		142		30		30
Subtotal	5,237		5,446		—		4,731		331		287

With an allowance recorded:
Mortgage loans:
Land	141		141		27		246		—		—
Consumer loans:
Other	23		23		17		10		—		—
Commercial business loans	536		536		128		350		30		30
Subtotal	700		700		172		606		30		30
Total
Mortgage loans:
One- to four-family	1,192		1,236		—		1,110		71		62
Commercial	3,190		3,190		—		2,920		227		192
Land	204		267		27		346		3		3
Consumer loans:
Home equity and second mortgage	603		603		—		459		—		—
Other	23		23		17		10		—		—
Commercial business loans	725		827		128		492		60		60
Total	$	5,937	$	6,146	$	172	$	5,337	$	361	$	317

_____________________________________________

(1) For the year ended September 30, 2019.

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 $3.22 million and $3.27 million in TDRs included in impaired loans at March 31, 2020 and September 30, 2019, 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, 2020 and September 30, 2019 was $47,000 and $56,000, 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 March 31, 2020.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 ("CARES Act") provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of March 31, 2020, the Company had approved COVID-19 pandemic related loan modifications for 125 loans aggregating to $79.41 million, or 8.6% of loans receivable. The Company is continuing to make COVID-19 pandemic related modifications for borrowers and as of April 30, 2020, had approved 178 loan modifications aggregating to $125.24 million, or 13.6% of loans receivable balances as of March 31, 2020.

The following tables set forth information with respect to the Company’s TDRs by interest accrual status as of March 31, 2020 and September 30, 2019 (dollars in thousands):



	March 31, 2020
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	485	$	—	$	485
Commercial	2,392		—		2,392
Land	—		136		136
Consumer loans:
Home equity and second mortgage	—		77		77
Commercial business loans	—		130		130
Total	$	2,877	$	343	$	3,220



	September 30, 2019
	Accruing		Non- Accrual		Total
Mortgage loans:
One- to four-family	$	493	$	141	$	634
Commercial	2,410		—		2,410
Consumer loans:
Home equity and second mortgage	—		82		82
Commercial business loans	—		143		143
Total	$	2,903	$	366	$	3,269

There were no new TDRs during the six months ended March 31, 2020.

There was one new TDR during the year ended September 30, 2019. The following table sets forth information with respect to the Company's TDRs, by portfolio segment, during the year ended September 30, 2019 (dollars in thousands):



2019	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		End of Period Balance
Home equity and second mortgage loan (1)	1	$	85	$	85	$	82
Total	1	$	85	$	85	$	82
(1) Modification was a result of a reduction in interest rate and monthly payment.