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LOANS RECEIVABLE, NET
 12 Months Ended
Sep. 30, 2018
Loans Receivable, Net [Abstract]  
LOANS RECEIVABLE, NET

NOTE E - LOANS RECEIVABLE, NET

 

Loans receivable are comprised of the following:

 

   September 30,   September 30, 
   2018   2017 
   (In thousands) 
         
One-to four-family residential  $185,287   $178,336 
Commercial real estate   219,347    207,118 
Construction   30,412    22,622 
Home equity lines of credit   17,982    18,536 
Commercial business   53,320    41,113 
Other   6,150    6,266 
Total loans receivable   512,498    473,991 
Net deferred loan costs   132    177 
Allowance for loan losses   (4,200)   (3,475)
           
Total loans receivable, net  $508,430   $470,693 

 

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 $2.8 million and $2.9 million at September 30, 2018 and 2017, respectively. There were $137,000 in new advances on existing lines of credit during the year ended September 30, 2018 and there were no principal additions during the year ended September 30, 2017. Total principal repayments were approximately $231,000 and $305,000 for the year ended September 30, 2018 and 2017, respectively.

 

At September 30, 2018 and 2017, the Company was servicing loans for others amounting to approximately $41.4 million and $38.7 million, respectively. The Company held mortgage servicing rights in the amount of $45,000 and $69,000 at September 30, 2018 and 2017, 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 $78,000 and $97,000 at September 30, 2018 and 2017, 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: 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, 2018  Investment   Allowance   Investment   Investment   Balance 
   (In thousands) 
                     
One-to four-family residential  $—   $—   $1,132   $1,132   $1,132 
Commercial real estate   —    —    3,961    3,961    3,961 
Home equity lines of credit   —    —    58    58    58 
Commercial business   —    —    710    710    801 
Total impaired loans  $—   $—   $5,861   $5,861   $5,952 

 

 

           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, 2017  Investment   Allowance   Investment   Investment   Balance 
   (In thousands) 
                     
One-to four-family residential  $—   $—   $3,124   $3,124   $3,436 
Commercial real estate   —    —    4,088    4,088    4,110 
Commercial business   —    —    243    243    243 
Total impaired loans  $—   $—   $7,455   $7,455   $7,789 

 

The average recorded investment in impaired loans was $6.1 million and $8.6 million for the years ended September 30, 2018 and 2017, respectively. The Company’s impaired loans include $1.2 million in delinquent loans and $4.7 million in performing Troubled Debt Restructurings (“TDRs”), as TDRs remain impaired loans until fully repaid. During the years ended September 30, 2018 and 2017, interest income of $238,000 and $253,000, respectively, was recognized for TDR loans while no interest income was recognized for delinquent non-accrual loans.

 

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, 2018                    
One-to four-family residential  $185,118   $—   $169   $—   $185,287 
Commercial real estate   217,935    753    659    —    219,347 
Construction   30,412    —    —    —    30,412 
Home equity lines of credit   17,924    —    58    —    17,982 
Commercial business   52,845    —    475    —    53,320 
Other   6,150    —    —    —    6,150 
Total  $510,384   $753   $1,361   $—   $512,498 

 

 

       Special             
   Pass   Mention   Substandard   Doubtful   Total 
   (In  thousands) 
September 30, 2017                    
One-to four-family residential  $176,285   $127   $1,924   $—   $178,336 
Commercial real estate   204,435    —    2,683    —    207,118 
Construction   20,194    —    2,428    —    22,622 
Home equity lines of credit   18,536    —    —    —    18,536 
Commercial business   40,820    293    —    —    41,113 
Other   6,266    —    —    —    6,266 
Total  $466,536   $420   $7,035   $—   $473,991 

 

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, 2018                            
One-to four-family residential  $185,132   $17   $—   $138   $155   $138   $185,287 
Commercial real estate   218,892    —    —    455    455    455    219,347 
Construction   30,412    —    —    —    —    —    30,412 
Home equity lines of credit   17,892    —    —    90    90    90    17,982 
Commercial business   52,845    252    —    223    475    223    53,320 
Other   6,150    —    —    —    —    —    6,150 
Total  $511,323   $269   $—   $906   $1,175   $906   $512,498 

 

 

       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, 2017                            
One-to four-family residential  $176,546   $—   $127   $1,663   $1,790   $1,663   $178,336 
Commercial real estate   206,218    418    —    482    900    482    207,118 
Construction   22,622    —    —    —    —    —    22,622 
Home equity lines of credit   18,344    —    192    —    192    —    18,536 
Commercial business   40,420    400    80    213    693    213    41,113 
Other   6,266    —    —    —    —    —    6,266 
Total  $470,416   $818   $399   $2,358   $3,575   $2,358   $473,991 

 

The amount of interest income not recognized on non-accrual loans was approximately $40,000 and $106,000 for the years ended September 30, 2018 and 2017, respectively. At September 30, 2018 and September 30, 2017, 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, 2018 and 2017:

 

   One-to Four-           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In  thousands) 
                                 
Balance-September 30, 2017  $587   $1,277   $490   $57   $956   $6   $102   $3,475 
Charge-offs   (213)   —    —    —    (170)   (3)   —    (386)
Recoveries   87    23    3    —    1    —    —    114 
Provision   226    240    —    52    364    22    93    997 
Balance-September 30, 2018  $687   $1,540   $493   $109   $1,151   $25   $195   $4,200 

 

   One-to Four-           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In  thousands) 
                                 
Balance-September 30, 2016  $542   $1,075   $361   $71   $976   $9   $22   $3,056 
Charge-offs   (295)   (23)   —    —    (672)   —    —    (990)
Recoveries   36    —    12    14    4    —    —    66 
Provision   304    225    117    (28)   648    (3)   80    1,343 
Balance-September 30, 2017  $587   $1,277   $490   $57   $956   $6   $102   $3,475 

 

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, 2018 and September 30, 2017:

 

   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, 2018  $687   $1,540   $493   $109   $1,151   $25   $195   $4,200 
Individually evaluated                                        
for impairment   —    —    —    —    —    —    —    — 
Collectively evaluated                                        
for impairment   687    1,540    493    109    1,151    25    195    4,200 
                                         
Loans receivable:                                        
Balance - September 30, 2018  $185,287   $219,347   $30,412   $17,982   $53,320   $6,150   $—   $512,498 
Individually evaluated                                        
for impairment   1,132    3,961    —    58    710    —    —    5,861 
Collectively evaluated                                        
for impairment   184,155    215,386    30,412    17,924    52,610    6,150    —    506,637 

 

   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, 2017  $587   $1,277   $490   $57   $956   $6   $102   $3,475 
Individually evaluated                                        
for impairment   —    —    —    —    —    —    —    — 
Collectively evaluated                                        
for impairment   587    1,277    490    57    956    6    102    3,475 
                                         
Loans receivable:                                        
Balance - September 30, 2017  $178,336   $207,118   $22,622   $18,536   $41,113   $6,266   $—   $473,991 
Individually evaluated                                        
for impairment   3,124    4,088    —    —    243    —    —    7,455 
Collectively evaluated                                        
for impairment   175,212    203,030    22,622    18,536    40,870    6,266    —    466,536 

 

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.

 

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.

 

A default on a troubled debt restructured 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. There was one TDR during the year ended September 30, 2017, and there were no TDRs during the year ended September 30, 2018. The following table summarizes the TDRs during the year ended September 30, 2017:

 

   Year Ended September 30, 2017 
   Number of   Investment Before   Investment After 
   Loans   TDR Modification   TDR Modification 
   (Dollars in thousands) 
One-to four-family residential   1   $182   $182 
                
Total   1   $182   $182 

 

The Company held no interest-only mortgage loans at September 30, 2018 and held interest-only loans with principal balances of $6.1 million at September 30, 2017. The average interest-only term on these loans was 10 years at which time the loans reset to fully amortize over 20 years, on average.

 

Total loans pledged as collateral against Federal Home Loan Bank of New York borrowings was $172.4 million and $177.6 million as of September 30, 2018 and 2017, respectively.