Loans and Allowance for Loan Losses | 3. Loans and Allowance for Loan Losses June 30, September 30, 2015 2014 (In thousands) Real estate mortgage: 1-4 family residential $ 182,454 $ 182,743 Commercial 160,706 153,896 Multifamily residential 23,026 21,286 Residential construction 16,114 14,528 Commercial construction 14,151 8,354 Land and land development 11,608 11,290 Commercial business loans 33,164 28,448 Consumer: Home equity loans 18,572 17,903 Auto loans 5,579 5,619 Other consumer loans 2,135 2,320 Gross loans 467,509 446,387 Undisbursed portion of construction loans (13,245) (6,271) Principal loan balance 454,264 440,116 Deferred loan origination fees and costs, net (79) 10 Allowance for loan losses (6,520) (6,250) Loans, net $ 447,665 $ 433,876 During the nine-month period ended June 30, 2015, there was no significant change in the Company’s lending activities or methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014. Residential Commercial Land & Land Commercial Real Estate Real Estate Multifamily Construction Development Business Consumer Total (In thousands) Recorded Investment in Loans: Principal loan balance $ 182,454 $ 160,706 $ 23,026 $ 17,020 $ 11,608 $ 33,164 $ 26,286 $ 454,264 Accrued interest receivable 563 421 63 30 33 95 58 1,263 Net deferred loan origination fees and costs 294 (275) (28) (60) 7 (15) (2) (79) Recorded investment in loans $ 183,311 $ 160,852 $ 23,061 $ 16,990 $ 11,648 $ 33,244 $ 26,342 $ 455,448 Recorded Investment in Loans as Evaluated for Impairment: Individually evaluated for impairment $ 4,916 $ 7,153 $ - $ - $ - $ 321 $ 318 $ 12,708 Collectively evaluated for impairment 178,004 153,699 23,061 16,990 11,648 32,923 25,993 442,318 Acquired with deteriorated credit quality 391 - - - - - 31 422 Ending balance $ 183,311 $ 160,852 $ 23,061 $ 16,990 $ 11,648 $ 33,244 $ 26,342 $ 455,448 The following table provides the components of the recorded investment in loans as of September 30, 2014: Residential Commercial Land & Land Commercial Real Estate Real Estate Multifamily Construction Development Business Consumer Total (In thousands) Recorded Investment in Loans: Principal loan balance $ 182,743 $ 153,896 $ 21,286 $ 16,611 $ 11,290 $ 28,448 $ 25,842 $ 440,116 Accrued interest receivable 590 384 53 44 31 111 63 1,276 Net deferred loan origination fees and costs 337 (252) (28) (54) 4 (9) 12 10 Recorded investment in loans $ 183,670 $ 154,028 $ 21,311 $ 16,601 $ 11,325 $ 28,550 $ 25,917 $ 441,402 Recorded Investment in Loans as Evaluated for Impairment: Individually evaluated for impairment $ 4,866 $ 5,705 $ - $ - $ - $ 145 $ 350 $ 11,066 Collectively evaluated for impairment 178,298 148,323 21,311 16,601 11,325 28,405 25,535 429,798 Acquired with deteriorated credit quality 506 - - - - - 32 538 Ending balance $ 183,670 $ 154,028 $ 21,311 $ 16,601 $ 11,325 $ 28,550 $ 25,917 $ 441,402 Residential Commercial Multifamily Construction Land & Land Commercial Consumer Total (In thousands) Ending Allowance Balance Attributable to Loans: Individually evaluated for impairment $ 11 $ - $ - $ - $ - $ - $ 8 $ 19 Collectively evaluated for impairment 604 3,855 170 549 375 841 107 6,501 Acquired with deteriorated credit quality - - - - - - - - Ending balance $ 615 $ 3,855 $ 170 $ 549 $ 375 $ 841 $ 115 $ 6,520 An analysis of the allowance for loan losses as of September 30, 2014 is as follows: Residential Commercial Multifamily Construction Land & Land Commercial Consumer Total (In thousands) Ending Allowance Balance Attributable to Loans: Individually evaluated for impairment $ 13 $ - $ - $ - $ - $ - $ 8 $ 21 Collectively evaluated for impairment 564 3,808 146 443 302 795 171 6,229 Acquired with deteriorated credit quality - - - - - - - - Ending balance $ 577 $ 3,808 $ 146 $ 443 $ 302 $ 795 $ 179 $ 6,250 Residential Commercial Multifamily Construction Land & Land Commercial Consumer Total (In thousands) Changes in Allowance for Loan Losses: Beginning balance $ 457 $ 4,109 $ 163 $ 455 $ 316 $ 886 $ 128 $ 6,514 Provisions 300 (254) 7 94 59 3 (1) 208 Charge-offs (156) - - - - (48) (30) (234) Recoveries 14 - - - - - 18 32 Ending balance $ 615 $ 3,855 $ 170 $ 549 $ 375 $ 841 $ 115 $ 6,520 An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2015 is as follows: Residential Commercial Multifamily Construction Land & Land Commercial Consumer Total (In thousands) Changes in Allowance for Loan Losses: Beginning balance $ 577 $ 3,808 $ 146 $ 443 $ 302 $ 795 $ 179 $ 6,250 Provisions 298 47 24 106 73 93 (14) 627 Charge-offs (299) - - - - (48) (103) (450) Recoveries 39 - - - - 1 53 93 Ending balance $ 615 $ 3,855 $ 170 $ 549 $ 375 $ 841 $ 115 $ 6,520 An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2014 is as follows: Residential Commercial Multifamily Construction Land & Land Commercial Consumer Total (In thousands) Changes in Allowance for Loan Losses: Beginning balance $ 626 $ 3,440 $ 271 $ 222 $ 356 $ 907 $ 238 $ 6,060 Provisions 291 (587) (106) 29 35 622 16 300 Charge-offs (291) 144 - - - (234) (14) (395) Recoveries 15 - - - - - 12 27 Ending balance $ 641 $ 2,997 $ 165 $ 251 $ 391 $ 1,295 $ 252 $ 5,992 An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2014 is as follows: Residential Commercial Multifamily Construction Land & Land Commercial Consumer Total (In thousands) Changes in Allowance for Loan Losses: Beginning balance $ 780 $ 2,826 $ 249 $ 229 $ 299 $ 907 $ 248 $ 5,538 Provisions 230 (48) (84) 22 92 622 70 904 Charge-offs (388) - - - - (234) (113) (735) Recoveries 19 219 - - - - 47 285 Ending balance $ 641 $ 2,997 $ 165 $ 251 $ 391 $ 1,295 $ 252 $ 5,992 At June 30, 2015 Three Months Ended June 30, Nine Months Ended June 30, 2015 2015 2014 2014 2015 2015 2014 2014 Unpaid Average Interest Average Interest Average Interest Average Interest Recorded Principal Related Recorded Income Recorded Income Recorded Income Recorded Income Investment Balance Allowance Investment Recognized Investment Recognized Investment Recognized Investment Recognized (In thousands) Loans with no related allowance recorded: Residential real estate $ 5,083 $ 5,568 $ - $ 5,643 $ 36 $ 5,614 $ 33 $ 5,663 $ 109 $ 5,976 $ 98 Commercial real estate 7,130 7,165 - 6,047 55 5,816 65 5,842 168 5,896 176 Multifamily - - - - - 2,214 27 - - 2,227 83 Construction - - - - - - - - - - - Land and land development - - - - - - - - - - - Commercial business 321 304 - 305 - 164 - 242 1 333 1 Consumer 231 235 - 233 1 265 2 243 4 294 5 $ 12,765 $ 13,272 $ - $ 12,048 $ 92 $ 14,073 $ 127 $ 11,990 $ 282 $ 14,726 $ 363 Loans with an allowance recorded: Residential real estate $ 75 $ 73 $ 11 $ 73 $ - $ 55 $ - $ 129 $ - $ 55 $ - Commercial real estate 23 22 - 22 - - - 9 - - - Multifamily - - - - - - - - - - - Construction - - - - - - - - - - - Land and land development - - - - - - - - - - - Commercial business - - - 12 - - - 5 - - - Consumer 87 87 8 93 - 103 - 91 - 101 - $ 185 $ 182 $ 19 $ 200 $ - $ 158 $ - $ 234 $ - $ 156 $ - Total: Residential real estate $ 5,158 $ 5,641 $ 11 $ 5,536 $ 36 $ 5,669 $ 33 $ 5,792 $ 109 $ 6,031 $ 98 Commercial real estate 7,153 7,187 - 6,069 55 5,816 65 5,851 168 5,896 176 Multifamily - - - - - 2,214 27 - - 2,227 83 Construction - - - - - - - - - - - Land and land development - - - - - - - - - - - Commercial business 321 304 - 317 - 164 - 247 1 333 1 Consumer 318 322 8 326 1 368 2 334 4 395 5 $ 12,950 $ 13,454 $ 19 $ 12,248 $ 92 $ 14,231 $ 127 $ 12,224 $ 282 $ 14,882 $ 363 The Company recognized $ 5,000 52,000 11,000 Unpaid Recorded Principal Related Investment Balance Allowance (In thousands) Loans with no related allowance recorded: Residential real estate $ 4,974 $ 5,426 $ - Commercial real estate 5,705 5,739 - Multifamily - - - Construction - - - Land and land development - - - Commercial business 145 133 - Consumer 255 258 - $ 11,079 $ 11,556 $ - Loans with an allowance recorded: Residential real estate $ 167 $ 166 $ 13 Commercial real estate - - - Multifamily - - - Construction - - - Land and land development - - - Commercial business - - - Consumer 95 95 8 $ 262 $ 261 $ 21 Total: Residential real estate $ 5,141 $ 5,592 $ 13 Commercial real estate 5,705 5,739 - Multifamily - - - Construction - - - Land and land development - - - Commercial business 145 133 - Consumer 350 353 8 $ 11,341 $ 11,817 $ 21 Nonperforming loans consist of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at June 30, 2015: Loans 90+ Days Total Nonaccrual Past Due Nonperforming Loans Still Accruing Loans (In thousands) Residential real estate $ 2,352 $ 178 $ 2,530 Commercial real estate 1,919 - 1,919 Multifamily - - - Construction - - - Land and land development - - - Commercial business 304 100 404 Consumer 189 - 189 Total $ 4,764 $ 278 $ 5,042 The following table presents the recorded investment in nonperforming loans at September 30, 2014: Loans 90+ Days Total Nonaccrual Past Due Nonperforming Loans Still Accruing Loans (In thousands) Residential real estate $ 2,431 $ 458 $ 2,889 Commercial real estate 1,034 - 1,034 Multifamily - - - Construction - - - Land and land development - - - Commercial business 123 - 123 Consumer 216 20 236 Total $ 3,804 $ 478 $ 4,282 The following table presents the aging of the recorded investment in past due loans at June 30, 2015: 30-59 60-89 90 + Days Days Days Total Total Past Due Past Due Past Due Past Due Current Loans (In thousands) Residential real estate $ 3,522 $ 877 $ 1,777 $ 6,176 $ 177,135 $ 183,311 Commercial real estate 364 - 200 564 160,288 160,852 Multifamily - 391 - 391 22,670 23,061 Construction 79 - - 79 16,911 16,990 Land and land development - - - - 11,648 11,648 Commercial business 178 52 404 634 32,610 33,244 Consumer 41 31 20 92 26,250 26,342 Total $ 4,184 $ 1,351 $ 2,401 $ 7,936 $ 447,512 $ 455,448 The following table presents the aging of the recorded investment in past due loans at September 30, 2014: 30-59 60-89 90 + Days Days Days Total Total Past Due Past Due Past Due Past Due Current Loans (In thousands) Residential real estate $ 4,493 $ 1,639 $ 1,823 $ 7,955 $ 175,715 $ 183,670 Commercial real estate 115 54 59 228 153,800 154,028 Multifamily 297 - - 297 21,014 21,311 Construction - - - - 16,601 16,601 Land and land development 6 205 - 211 11,114 11,325 Commercial business 259 - 123 382 28,168 28,550 Consumer 39 79 72 190 25,727 25,917 Total $ 5,209 $ 1,977 $ 2,077 $ 9,263 $ 432,139 $ 441,402 The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic conditions and trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings: Special Mention: Substandard: Doubtful: Loss: Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. Residential Commercial Land and Land Commercial Real Estate Real Estate Multifamily Construction Development Business Consumer Total (In thousands) Pass $ 174,242 $ 142,958 $ 23,061 $ 16,990 $ 11,298 $ 32,818 $ 25,946 $ 427,313 Special Mention 2,710 11,364 - - 255 117 137 14,583 Substandard 5,992 6,530 - - 95 309 251 13,177 Doubtful 367 - - - - - 8 375 Loss - - - - - - - - Total $ 183,311 $ 160,852 $ 23,061 $ 16,990 $ 11,648 $ 33,244 $ 26,342 $ 455,448 As of September 30, 2014, the recorded investment in loans by risk category was as follows: Residential Commercial Land and Land Commercial Real Estate Real Estate Multifamily Construction Development Business Consumer Total (In thousands) Pass $ 172,822 $ 138,854 $ 21,311 $ 16,601 $ 11,206 $ 28,127 $ 25,471 $ 414,392 Special Mention 4,233 10,226 - - 6 278 89 14,832 Substandard 6,398 4,948 - - 113 145 350 11,954 Doubtful 217 - - - - - 7 224 Loss - - - - - - - - Total $ 183,670 $ 154,028 $ 21,311 $ 16,601 $ 11,325 $ 28,550 $ 25,917 $ 441,402 Troubled Debt Restructurings Modification of a loan is considered to be a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the Company grants a concession to the debtor that it would not otherwise consider. By granting the concession, the Company expects to obtain more cash or other value from the debtor, or to increase the probability of receipt, than would be expected by not granting the concession. The concession may include, but is not limited to, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession will be granted when, as a result of the restructuring, the Company does not expect to collect all amounts due, including interest at the original stated rate. A concession may also be granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification. Loans modified in a TDR may be retained on accrual status if the borrower has maintained a period of performance in which the borrower’s lending relationship was not greater than ninety days delinquent at the time of restructuring and the Company determines the future collection of principal and interest is reasonably assured. Loans modified in a TDR that are placed on nonaccrual status at the time of restructuring will continue on nonaccrual status until the Company determines the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms of at least six consecutive months. Accruing Nonaccrual Total (In thousands) June 30, 2015: Residential real estate $ 2,806 $ 214 $ 3,020 Commercial real estate 5,234 - 5,234 Commercial business 17 - 17 Consumer 129 - 129 Total $ 8,186 $ 214 $ 8,400 September 30, 2014: Residential real estate $ 2,710 $ 214 $ 2,924 Commercial real estate 4,671 696 5,367 Commercial business 22 - 22 Consumer 134 - 134 Total $ 7,537 $ 910 $ 8,447 Pre- Post- Modification Modification Number of Principal Principal Loans Balance Balance (In thousands) June 30, 2015: Three Months Ended June 30, 2015: Consumer 1 $ 3 $ 3 Total 1 $ 3 $ 3 Nine Months Ended June 30, 2015: Residential real estate 2 $ 165 $ 172 Consumer 1 3 3 Total 3 $ 168 $ 175 June 30, 2014: Three Months Ended June 30, 2014: Residential real estate 2 $ 76 $ 76 Total 2 $ 76 $ 76 Nine Months Ended June 30, 2014: Residential real estate 5 $ 215 $ 235 Commercial real estate 1 716 724 Total 6 $ 931 $ 959 For the TDRs listed above, the terms of modification included reduction of the stated interest rate and extension of the maturity date where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics. The Company had not committed to lend any additional amounts as of June 30, 2015 and September 30, 2014 to customers with outstanding loans classified as TDRs at such dates. There were no principal charge-offs recorded as a result of TDRs during the nine-month periods ended June 30, 2015 and 2014. There was no specific allowance for loan losses related to TDRs modified during the nine-month periods ended June 30, 2015 and 2014. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan. During the nine-month period ended June 30, 2015, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default (defined as more than 90 days past due or in the process of foreclosure). During the nine-month period ended June 30, 2014, the Company had two TDRs totaling $ 476,000 |