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LOANS RECEIVABLE, NET
 12 Months Ended
Sep. 30, 2016
Loans Receivable, Net [Abstract]  
LOANS RECEIVABLE, NET

NOTE E - LOANS RECEIVABLE, NET

 

Loans receivable are comprised of the following:

 

   September 30,   September 30, 
   2016   2015 
   (In thousands) 
         
One-to four-family residential  $173,235   $169,781 
Commercial real estate   199,510    173,864 
Construction   14,939    6,679 
Home equity lines of credit   21,967    21,176 
Commercial business   38,865    41,485 
Other   9,355    10,305 
Total loans receivable   457,871    423,290 
Net deferred loan costs   216    192 
Allowance for loan losses   (3,056)   (2,886)
           
Total loans receivable, net  $455,031   $420,596 

 

Certain directors and executive officers of the Company have loans with the Bank. Such loans were made in the ordinary course of business at the Bank’s normal credit terms, including interest rate and collateralization, and do not represent more than a normal risk of collection. Total loans receivable from directors and executive officers, and affiliates thereof, were approximately $4.5 million and $4.6 million at September 30, 2016 and 2015, respectively. Total principal additions were approximately $290,000 and $1.9 million at September 30, 2016 and 2015, respectively. Total principal repayments were approximately $463,000 and $1.3 million for the year ended September 30, 2016 and 2015, respectively.

 

At September 30, 2016 and 2015, the Company was servicing loans for others amounting to approximately $40.3 million and $32.8 million, respectively. The Company held mortgage servicing rights in the amount of $97,000 and $132,000 at September 30, 2016 and 2015, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and foreclosure processing. Loan servicing income is recorded on the cash basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. In connection with loans serviced for others, the Company held borrowers’ escrow balances of approximately $114,000 and $130,000 at September 30, 2016 and 2015, respectively.

 

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens.  The commercial loan segment is further disaggregated into three classes. Commercial real estate loans include loans secured by multifamily structures, owner-occupied commercial structures, and non-owner occupied nonresidential properties.  The construction loan segment consists primarily of developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built.  Construction loans to developers and investors have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan.  The commercial business loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists primarily of revolving lines of credit. The consumer loan segment consists primarily of stock-secured installment loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.

 

Management evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated Substandard and is greater than 90 days past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  

 

Once the determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s current observable market price; or (c) the fair value of the collateral securing the loan, less anticipated selling and disposition costs. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment in a loan does not exceed its fair value.

 

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary for the periods presented:

 

           Impaired Loans         
   Impaired Loans with   with No Specific         
   Specific Allowance   Allowance   Total Impaired Loans 
                   Unpaid 
At and for the year ended  Recorded   Related   Recorded   Recorded   Principal 
September 30, 2016  Investment   Allowance   Investment   Investment   Balance 
   (In thousands) 
                     
One-to four-family residential  $—   $—   $4,010   $4,010   $4,239 
Commercial real estate   —    —    3,843    3,843    3,843 
Home equity lines of credit   —    —    153    153    167 
Commercial business   997    39    250    1,247    1,850 
Total impaired loans  $997   $39   $8,256   $9,253   $10,099 

 

           Impaired Loans         
   Impaired Loans with   with No Specific         
   Specific Allowance   Allowance   Total Impaired Loans 
                   Unpaid 
At and for the year ended  Recorded   Related   Recorded   Recorded   Principal 
September 30, 2015  Investment   Allowance   Investment   Investment   Balance 
   (In thousands) 
                     
One-to four-family residential  $—   $—   $3,017   $3,017   $3,134 
Commercial real estate   —    —    5,447    5,447    6,556 
Home equity lines of credit   —    —    417    417    521 
Commercial business   1,690    201    66    1,756    1,756 
Total impaired loans  $1,690   $201   $8,947   $10,637   $11,967 

  

The average recorded investment in impaired loans was $10.0 million and $14.8 million for the years ended September 30, 2016 and 2015, respectively. During the years ended September 30, 2016 and 2015, no interest income was recognized while the loans were impaired, and no interest income was recognized using the cash basis method of accounting while these loans were impaired.

 

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system for the periods presented:

 

       Special             
   Pass   Mention   Substandard   Doubtful   Total 
   (In  thousands) 
September 30, 2016                         
One-to four-family residential  $169,596   $209   $3,430   $—   $173,235 
Commercial real estate   196,838    —    2,672    —    199,510 
Construction   12,461    —    2,478    —    14,939 
Home equity lines of credit   21,814    —    153    —    21,967 
Commercial business   37,868    —    —    997    38,865 
Other   9,355    —    —    —    9,355 
Total  $447,932   $209   $8,733   $997   $457,871 

 

 

       Special             
   Pass   Mention   Substandard   Doubtful   Total 
   (In  thousands) 
September 30, 2015                         
One-to four-family residential  $166,846   $—   $2,935   $—   $169,781 
Commercial real estate   169,239    210    3,309    1,106    173,864 
Construction   2,468    —    4,211    —    6,679 
Home equity lines of credit   19,436    —    1,740    —    21,176 
Commercial business   39,764    —    1,721    —    41,485 
Other   10,305    —    —    —    10,305 
Total  $408,058   $210   $13,916   $1,106   $423,290 

 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans for the periods presented:

 

       30-59   60-89                 
       Days   Days   90 Days +   Total   Non-   Total 
   Current   Past Due   Past Due   Past Due   Past Due   Accrual   Loans 
   (In  thousands) 
September 30, 2016                            
One-to four-family residential  $170,705   $—   $44   $2,486   $2,530   $2,486   $173,235 
Commercial real estate   198,577    —    490    443    933    443    199,510 
Construction   14,939    —    —    —    —    —    14,939 
Home equity lines of credit   21,686    —    —    281    281    281    21,967 
Commercial business   37,865    —    3    997    1,000    997    38,865 
Other   9,355    —    —    —    —    —    9,355 
Total  $453,127   $—   $537   $4,207   $4,744   $4,207   $457,871 

 

 

       30-59   60-89                 
       Days   Days   90 Days +   Total   Non-   Total 
   Current   Past Due   Past Due   Past Due   Past Due   Accrual   Loans 
   (In  thousands) 
September 30, 2015                            
One-to four-family residential  $166,993   $—   $730   $2,058   $2,788   $2,058   $169,781 
Commercial real estate   171,969    —    —    1,895    1,895    1,895    173,864 
Construction   6,679    —    —    —    —    —    6,679 
Home equity lines of credit   20,921    —    —    255    255    255    21,176 
Commercial business   39,777    —    19    1,689    1,708    1,689    41,485 
Other   10,305    —    —    —    —    —    10,305 
Total  $416,644   $—   $749   $5,897   $6,646   $5,897   $423,290 

 

The amount of interest income not recognized on non-accrual loans was approximately $217,000 and $356,000 for the years ended September 30, 2016 and 2015, respectively. At September 30, 2016 and September 30, 2015, there were no commitments to lend additional funds to borrowers whose loans are classified as non-accrual.

 

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of NPLs.

 

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.  

 

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative and economic factors.

 

The loans are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over 5 historical years is used.

 

Non-impaired credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

 

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ALL for loans individually evaluated for impairment.

 

The following tables summarize the activity in the allowance for loan losses by loan category for the years ended September 30, 2016 and 2015:

 

   One-to Four-           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In  thousands) 
                                 
Balance-September 30, 2015  $395   $931   $453   $53   $969   $6   $79   $2,886 
Charge-offs   (133)   (61)   —    (98)   (1,119)   —    —    (1,411)
Recoveries   —    100    7    80    28    —    —    215 
Provision   280    105    (99)   36    1,098    3    (57)   1,366 
Balance-September 30, 2016  $542   $1,075   $361   $71   $976   $9   $22   $3,056 

 

   One-to Four-           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In  thousands) 
                                 
Balance-September 30, 2014  $402   $826   $784   $62   $643   $9   $109   $2,835 
Charge-offs   (176)   (397)   (342)   (461)   (274)   (1)   —    (1,651)
Recoveries   400    —    38    —    —    —    —    438 
Provision   (231)   502    (27)   452    600    (2)   (30)   1,264 
Balance-September 30, 2015  $395   $931   $453   $53   $969   $6   $79   $2,886 

 

The following tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2016 and September 30, 2015:

 

   One-to Four-           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In thousands) 
Allowance for Loan Losses:                                        
Balance - September 30, 2016  $542   $1,075   $361   $71   $976   $9   $22   $3,056 
Individually evaluated                                        
for impairment   —    —    —    —    39    —    —    39 
Collectively evaluated                                        
for impairment   542    1,075    361    71    937    9    22    3,017 
                                         
Loans receivable:                                        
Balance - September 30, 2016  $173,235   $199,510   $14,939   $21,967   $38,865   $9,355   $—   $457,871 
Individually evaluated                                        
for impairment   4,010    3,843    —    153    1,247    —    —    9,253 
Collectively evaluated                                        
for impairment   169,225    195,667    14,939    21,814    37,618    9,355         448,618 

 

   One-to Four-           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In thousands) 
Allowance for Loan Losses:                                        
Balance - September 30, 2015  $395   $931   $453   $53   $969   $6   $79   $2,886 
Individually evaluated                                        
for impairment   —    —    —    —    201    —    —    201 
Collectively evaluated                                        
for impairment   395    931    453    53    768    6    79    2,685 
                                         
Loans receivable:                                        
Balance - September 30, 2015  $169,781   $173,864   $6,679   $21,176   $41,485   $10,305    —   $423,290 
Individually evaluated                                        
for impairment   3,017    5,447    —    417    1,756    —    —    10,637 
Collectively evaluated                                        
for impairment   166,764    168,417    6,679    20,759    39,729    10,305         412,653 

 

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

 

The Bank has adopted FASB issue ASU No. 2011-02 on the determination of whether a loan restructuring is considered to be a Troubled Debt Restructuring (“TDR”). A TDR is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally included, but are not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

 

There were no TDRs during the year ended September 30, 2016. The following tables summarize the TDRs during the twelve month periods ended September 30, 2016 and 2015:

 

   Year Ended September 30, 2015 
   Number of   Investment Before   Investment After 
   Loans   TDR Modification   TDR Modification 
   (Dollars in thousands) 
One-to four-family residential   —   $—   $— 
                
Total   —   $—   $— 

 

   Year Ended September 30, 2015 
   Number of   Investment Before   Investment After 
   Loans   TDR Modification   TDR Modification 
   (Dollars in thousands) 
One-to four-family residential   2   $650   $713 
                
Total   2   $650   $713 

 

A default on a TDR loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred. During the year ended September 30, 2016, no defaults occurred on troubled debt restructured loans that were modified as a TDR loans.

 

The Company held interest-only mortgage loans with principal balances of $8.6 million and $12.6 million at September 30, 2016 and 2015, respectively. The average interest-only term on these loans is 10 years at which time these loans reset to fully amortize over 20 years, on average. As these loans are collateralized by residential real estate with an average original loan-to-value of 69.4%, management does not anticipate any losses on these loans as of September 30, 2016.

 

Total loans pledged as collateral against Federal Home Loan Bank of New York borrowings was $109.4 million and $93.9 million as of September 30, 2016 and 2015, respectively.