Loans Receivable | Loans Receivable Loans outstanding, by portfolio segment, are summarized in the following table: December 31, 2017 September 30, 2017 1-4 family residential real estate $ 224,828,846 $ 232,040,341 Commercial real estate 698,905,628 697,070,779 Commercial 106,669,210 103,673,447 Real estate construction 94,141,706 88,791,799 Consumer and other 38,902,325 39,943,386 Total loans, net of acquisition fair value adjustments 1,163,447,715 1,161,519,752 Unamortized loan origination fees, net (1,020,158 ) (1,165,148 ) Allowance for loan losses (11,113,945 ) (11,078,422 ) Total loans, net $ 1,151,313,612 $ 1,149,276,182 Loan Origination and Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. Commercial real estate loans are generally made by the Company to entities in Georgia, Alabama, Florida and adjoining states and are secured by properties in these states. Commercial real estate lending involves different risks compared to one- to four-family residential lending. Repayment of commercial real estate loans often depends on the successful operations and income stream of the borrowers, and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. The Company’s underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayment, guarantor requirements, net worth requirements and quality of cash flow. As part of the loan approval and underwriting of commercial real estate loans, management undertakes a cash flow analysis, and generally requires a debt-service coverage ratio of at least 1.15 times. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2017 , approximately 29.9% of the outstanding principal balance of the Company’s commercial real estate loans was secured by owner-occupied properties. The Company makes construction and land development loans primarily for the construction of one- to four-family residences but also for multi-family and nonresidential real estate projects on a select basis. The Company offers construction loans to builders including both speculative (unsold) and pre-sold loans to pre-approved local builders. The number of speculative loans that management will extend to a builder at one time depends upon the financial strength and credit history of the builder. The Company’s construction loan program is expected to remain a modest portion of the loan volume, and management generally limits the number of outstanding loans on unsold homes under construction within a specific area. The Company also originates first and second mortgage loans and home equity lines of credit secured by one- to four-family residential properties within Georgia, Alabama and the Florida panhandle. Management currently originates mortgages at all branch locations, but utilizes a centralized underwriting location to reduce risk. The Company originates both fixed rate and adjustable rate one- to four-family residential mortgage loans. Fixed rate 30-year conforming loans are generally originated for sale into the primary or secondary markets and loans that are non-conforming due to property exceptions and that have adjustable rates are generally retained in the Company’s portfolio. The non-conforming loans originated are not considered to be subprime loans and the amount of subprime and low documentation loans held by the Company is not material. The Company also offers home equity lines of credit as a complement to one- to four-family residential mortgage lending. The underwriting standards applicable to home equity credit lines are similar to those for one- to four-family residential mortgage loans, except for slightly more stringent credit-to-income and credit score requirements. Home equity loans are generally limited to 90% of the value of the underlying property unless the loan is covered by private mortgage insurance. At December 31, 2017 , the Company had $45.9 million of home equity lines of credit and second mortgage loans. The Company originates consumer loans that consist of loans on deposits, auto loans, purchased mobile home loans, and various other installment loans. The Company primarily offers consumer loans as an accommodation to customers. Consumer loans tend to have a higher credit risk than residential mortgage loans because they may be secured by rapidly depreciable assets, or may be unsecured. The Company’s consumer lending generally follows accepted industry standards for non-subprime lending, including credit scores and debt to income ratios. The Company’s commercial business loans are generally limited to terms of ten years or less. While management typically collateralizes these loans with a lien on commercial real estate or, much less frequently, with a lien on business assets and equipment, the primary underwriting consideration is the business cash flow. Management also generally requires the personal guarantee of the business owner. Interest rates on commercial business loans are generally higher than interest rates on residential or commercial real estate loans due to the risk inherent in this type of loan. Commercial business loans are generally considered to have more risk than residential mortgage loans or commercial real estate loans because the collateral may be in the form of intangible assets and/or readily depreciable inventory. Commercial business loans may also involve relatively large loan balances to single borrowers or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation and income stream of the borrower. Such risks can be significantly affected by economic conditions. In addition, commercial business lending generally requires substantially greater supervision efforts by management compared to residential mortgage or commercial real estate lending. The Company also has a portfolio of Small Business Administration ("SBA") loans, which are generally related to commercial lending. Each loan has either a portion guaranteed by the SBA or other credit enhancements provided by the government. The Company maintains an internal loan review function that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. Nonaccrual and Past Due Loans. An aging analysis of past due loans, segregated by portfolio segment, at December 31, 2017 and September 30, 2017 was as follows: December 31, 2017 September 30, 2017 Current $ 1,156,485,808 $ 1,155,094,965 Accruing past due loans: 30-89 days past due 1-4 family residential real estate 1,899,148 1,567,688 Commercial real estate 1,020,147 1,490,424 Commercial 259,936 1,000,840 Real estate construction 1,405,987 — Consumer and other 444,135 659,174 Total 30-89 days past due 5,029,353 4,718,126 90 days or greater past due (1) 1-4 family residential real estate 332,412 46,223 Commercial real estate — — Commercial — — Real estate construction — — Consumer and other — — Total 90 days or greater past due 332,412 46,223 Total accruing past due loans 5,361,765 4,764,349 Nonaccruing loans: (2) 1-4 family residential real estate 323,704 293,224 Commercial real estate 1,227,999 1,327,037 Commercial 48,439 40,177 Real estate construction — — Consumer and other — — Nonaccruing loans 1,600,142 1,660,438 Total loans $ 1,163,447,715 $ 1,161,519,752 ________________________________ (1) No acquired loans are regarded as accruing loans and included in this section at December 31, 2017 or September 30, 2017 . These loans which are accounted for under ASC 310-30 are reported as accruing loans because of the ongoing recognition of accretion income established at the time of acquisition. (2) Acquired loans in the amount of $0 and $888,000 at December 31, 2017 and September 30, 2017 , respectively, are regarded as accruing loans and excluded from the nonaccrual section due to the ongoing recognition of accretion income established at the time of acquisition. Impaired Loans. The Company evaluates “impaired” loans, which include nonperforming loans and accruing troubled debt restructured loans having risk characteristics that are unique to an individual borrower, on a loan-by-loan basis with balances above a specified level. For smaller loans, the allowance is calculated based on the credit grade utilizing historical loss experience and other qualitative factors. Impaired loans for the periods ended December 31, 2017 and September 30, 2017 , segregated by portfolio segment, are presented below. There were $85,445 and $48,733 of recorded allowances for loan losses on impaired loans at December 31, 2017 and September 30, 2017 , respectively. Three Months Ended Recorded Investment Unpaid Principal Balance Related Allowance Average Investment in Impaired Loans Interest Income Recognized 1-4 family residential real estate (1) $ 1,336,609 $ 1,490,949 $ 63,283 $ 1,324,272 $ 13,662 Commercial real estate 4,887,532 5,850,846 — 5,011,347 47,660 Commercial 48,439 128,492 — 52,300 — Real estate construction — — — — — Consumer and other (2) 28,100 29,419 22,162 28,453 462 Total impaired loans $ 6,300,680 $ 7,499,706 $ 85,445 $ 6,416,372 $ 61,784 ________________________________ (1) 1-4 family residential real estate loans with related allowances totaling $63,283 had a recorded investment of $124,231 and unpaid principal balance of $130,341 at December 31, 2017 . During the three months ended December 31, 2017 , the Company had an average investment in such loans of $125,280 and recorded $542 of interest income on the loans. (2) Consumer and other loans with related allowances totaling $22,162 had a recorded investment of $28,100 and unpaid principal balance of $29,419 at December 31, 2017 . During the three months ended December 31, 2017 , the Company had an average investment in such loans of $28,453 and recorded $462 of interest income on the loans. The recorded investment in accruing troubled debt restructured loans (“TDRs”) at December 31, 2017 totaled $4.4 million and is included in the impaired loan table above. Year Ended Recorded Investment Unpaid Principal Balance Related Allowance Average Investment in Impaired Loans Interest Income Recognized 1-4 family residential real estate (1) $ 955,522 $ 1,143,831 $ 24,434 $ 975,317 $ 33,166 Commercial real estate (2) 5,960,208 6,970,943 24,299 6,131,422 259,651 Commercial 140,012 363,382 — 161,068 — Real estate construction — — — — — Consumer and Other 28,806 30,125 — 30,394 1,976 Total impaired loans $ 7,084,548 $ 8,508,281 $ 48,733 $ 7,298,201 $ 294,793 ________________________________ (1) 1-4 family residential real estate loans with related allowances totaling $24,434 had a recorded investment of $24,434 and unpaid principal balance of $25,131 at September 30, 2017 . During the year ended September 30, 2017 , the Company had an average investment in such loans of $24,858 and recorded $90 of interest income on the loans. (2) Commercial real estate loans with related allowances totaling $24,299 had a recorded investment of $686,520 and unpaid principal balance of $695,762 at September 30, 2017 . During the year ended September 30, 2017 , the Company had an average investment in such loans of $717,892 and recorded $39,825 of interest income on the loans. The recorded investment in accruing TDRs at September 30, 2017 totaled $5.0 million and is included in the impaired loan table above. Loans are classified as restructured by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have presented a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The concessions granted on TDRs generally include terms to reduce the interest rate or extend the term of the debt obligation. Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the loan is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months ). For the three month periods ended December 31, 2017 and 2016 , the following table presents a breakdown of the types of concessions determined to be TDRs during the period by loan class. Accruing Loans Nonaccrual Loans Three Months Ended December 31, 2017 Three Months Ended December 31, 2017 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Payment structure modification: 1-4 family residential real estate 2 $ 69,678 $ 69,678 — $ — $ — Commercial real estate 1 94,337 94,337 — — — Total 3 $ 164,015 $ 164,015 — $ — $ — Accruing Loans Nonaccrual Loans Three Months Ended December 31, 2016 Three Months Ended December 31, 2016 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Payment structure modification: 1-4 family residential real estate 3 $ 250,146 $ 250,146 — $ — $ — Consumer and other — — — 1 32,138 32,138 Total 3 $ 250,146 $ 250,146 1 $ 32,138 $ 32,138 At December 31, 2017 , restructured loans with a modified balance of $4.4 million were accruing and $89,804 were nonaccruing, while restructured loans with a modified balance of $4.8 million were accruing and $191,983 were nonaccruing at December 31, 2016 . There were no loans that were restructured within the past twelve months and subsequently defaulted at December 31, 2017 or 2016 . Acquired Impaired Loans . The following table documents changes in the accretable discount on acquired credit impaired loans during the three months ended December 31, 2017 and 2016 : Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Balance, beginning of period $ — $ 462,071 Loan accretion — (192,260 ) Balance, end of period $ — $ 269,811 The following table presents the outstanding balances and related carrying amounts for all purchase credit impaired loans at the periods ended December 31, 2017 and September 30, 2017 : December 31, 2017 September 30, 2017 Unpaid principal balance $ 18,010,435 $ 18,327,905 Carrying amount 16,695,965 16,974,607 Acquired Performing Loans . Included within total loans are acquired performing loans shown net of fair value discounts in the amount of $322.5 million and $333.5 million at December 31, 2017 and September 30, 2017 , respectively. These fair value discounts are being amortized over the remaining lives of the respective loans and totaled $3.7 million and $4.1 million at December 31, 2017 and September 30, 2017 , respectively. Credit Quality Indicators . As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including the level of classified loans, net charge-offs, nonperforming loans (see details above) and the general economic conditions in its market areas. The Company utilizes a risk rating system to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. The risk grade for each individual loan is determined by the loan officer and other approving officers at the time of loan origination and is adjusted from time to time to reflect an ongoing assessment of loan risk. Risk grades are reviewed quarterly for all substandard, nonaccrual and TDR loans, and annually as part of the Company's internal loan review process. In addition, individual loan risk grades are reviewed in connection with all renewals, extensions and modifications. The following table presents the risk grades of the loan portfolio, segregated by class of loans: December 31, 2017 1-4 family residential real estate Commercial real estate Commercial Real estate construction Consumer and other Total Pass (1-4) $ 223,239,763 $ 660,865,731 $ 105,597,061 $ 94,141,706 $ 38,874,225 $ 1,122,718,486 Special Mention (5) — 10,932,859 601,123 — — 11,533,982 Substandard (6) 1,589,083 27,107,038 471,026 — 28,100 29,195,247 Doubtful (7) — — — — — — Loss (8) — — — — — — Total loans $ 224,828,846 $ 698,905,628 $ 106,669,210 $ 94,141,706 $ 38,902,325 $ 1,163,447,715 September 30, 2017 1-4 family residential real estate Commercial real estate Commercial Real estate construction Consumer and other Total Pass (1-4) $ 230,417,503 $ 654,217,207 $ 102,690,306 $ 88,551,410 $ 39,914,580 $ 1,115,791,006 Special Mention (5) — 14,318,249 494,241 240,389 — 15,052,879 Substandard (6) 1,622,838 28,535,323 488,900 — 28,806 30,675,867 Doubtful (7) — — — — — — Loss (8) — — — — — — Total loans $ 232,040,341 $ 697,070,779 $ 103,673,447 $ 88,791,799 $ 39,943,386 $ 1,161,519,752 Allowance for Loan Losses . The allowance for loan losses is established through a provision for loan losses charged to expense and is an amount that management believes will be adequate to absorb losses on existing loans that become uncollectible, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, historical loss rates, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect a borrower’s ability to repay. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries are added to the allowance. Management’s allowance for loan losses methodology is a loan classification-based system. Management bases the required reserve on a percentage of the loan balance for each type of loan and classification level. Loans may be classified manually and are automatically classified if they are not previously classified when they reach certain levels of delinquency. Unclassified loans are reserved at different percentages based on the loan loss history of the last seven years . Reserve percentages are also adjusted based upon our estimate of the effect that the current economic environment will have on each type of loan. Management segments its allowance for loan losses into the following four major categories: (1) specific reserves; (2) general allowances for Classified/Watch loans; (3) general allowances for loans with satisfactory ratings; and (4) an unallocated amount. Risk ratings are initially assigned in accordance with CharterBank’s loan and collection policy. An organizationally independent department reviews risk grade assignments on an ongoing basis. Management reviews current information and events regarding a borrowers’ financial condition and strengths, cash flows available for debt repayment, the related collateral supporting the loan and the effects of known and expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual loan, management classifies the loan accordingly. If the loan is determined to be impaired, management allocates a portion of the allowance for loan losses for that loan based on the fair value of the collateral, if the loan is considered collateral-dependent, as the measure for the amount of the impairment. Impaired and Classified/Watch loans are aggressively monitored. The allowances for loans by credit grade are further subdivided by loan type. Charter Financial has developed specific quantitative allowance factors to apply to each loan which considers loan charge-off experience over the most recent seven years by loan type. In addition, loss estimates are applied for certain qualitative allowance factors that are subjective in nature and require considerable judgment on the part of management. Such qualitative factors include economic and business conditions, the volume of past due loans, changes in the value of collateral of collateral-dependent loans, and other economic uncertainties. An unallocated component of the allowance is also established for potential losses that exist in the remainder of the portfolio, but have yet to be identified. The Company incorporates certain refinements and improvements to its allowance for loan losses methodology from time to time. During the current quarter and the prior fiscal year, the Company made minor refinements to the qualitative risk factors but no significant changes to its allowance methodology. The adjustments in the Company's methodology were not material to the overall allowance or provision for the three months ended December 31, 2017 or for the fiscal year ended September 30, 2017 . An unallocated allowance is generally maintained in a range of 4% to 12% of the total allowance in recognition of the imprecision of the estimates and other factors. In times of greater economic downturn and uncertainty, the higher end of this range is provided. The Company recorded net recoveries of $35,523 during the three months ended December 31, 2017 . With asset quality remaining strong, and the continued trend of net recoveries, the Company recorded no provision for loan losses during the three months ended December 31, 2017 . A negative provision of $900,000 was recorded during the fiscal year ended September 30, 2017 , while a negative provision of $750,000 was recorded during the three months ended December 31, 2016 . The following tables present an analysis of the allowance for loan losses by portfolio segment and changes in the allowance for loan losses for the three months ended December 31, 2017 and 2016 . The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated, as well as loans acquired with deteriorated credit quality. Three Months Ended December 31, 2017 1-4 family real estate Commercial real estate Commercial Real estate construction Consumer and other Unallocated Total Allowance for loan losses: Beginning balance $ 663,061 $ 7,820,078 $ 776,551 $ 482,665 $ 196,037 $ 1,140,030 $ 11,078,422 Charge-offs (69,392 ) (194,204 ) — — (3,128 ) — (266,724 ) Recoveries 61,291 92,660 143,052 — 5,244 — 302,247 Provision 22,598 44,247 (82,943 ) 53,441 (2,072 ) (35,271 ) — Ending balance $ 677,558 $ 7,762,781 $ 836,660 $ 536,106 $ 196,081 $ 1,104,759 $ 11,113,945 Three Months Ended December 31, 2016 1-4 family real estate Commercial real estate Commercial Real estate construction Consumer and other Unallocated Total Allowance for loan losses: Beginning balance $ 779,288 $ 7,346,130 $ 600,258 $ 516,556 $ 79,140 $ 1,050,044 $ 10,371,416 Charge-offs — (49,097 ) — — (946 ) — (50,043 ) Recoveries 111,914 669,083 130,795 — 16,063 — 927,855 Provision (118,142 ) (866,210 ) 38,612 153,948 64,220 (22,428 ) (750,000 ) Ending balance $ 773,060 $ 7,099,906 $ 769,665 $ 670,504 $ 158,477 $ 1,027,616 $ 10,499,228 Balance at December 31, 2017 1-4 family real estate Commercial real estate Commercial Real estate construction Consumer and other Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 63,283 $ — $ — $ — $ 22,162 $ — $ 85,445 Other loans not individually evaluated 614,275 7,762,781 836,660 536,106 173,919 1,104,759 11,028,500 Ending balance $ 677,558 $ 7,762,781 $ 836,660 $ 536,106 $ 196,081 $ 1,104,759 $ 11,113,945 Loans: Amounts collectively evaluated for impairment $ 221,791,610 $ 682,419,211 $ 103,224,318 $ 94,141,706 $ 38,874,225 $ 1,140,451,070 Amounts individually evaluated for impairment 1,336,609 4,887,532 48,439 — 28,100 6,300,680 Amounts related to loans acquired with deteriorated credit quality 1,700,627 11,598,885 3,396,453 — — 16,695,965 Ending balance $ 224,828,846 $ 698,905,628 $ 106,669,210 $ 94,141,706 $ 38,902,325 $ 1,163,447,715 Balance at September 30, 2017 1-4 family real estate Commercial real estate Commercial Real estate construction Consumer and other Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 24,434 $ 24,299 $ — $ — $ — $ — $ 48,733 Other loans not individually evaluated 638,627 7,795,779 776,551 482,665 196,037 1,140,030 11,029,689 Ending balance $ 663,061 $ 7,820,078 $ 776,551 $ 482,665 $ 196,037 $ 1,140,030 $ 11,078,422 Loans: Amounts collectively evaluated for impairment $ 229,359,838 $ 679,367,829 $ 100,026,551 $ 88,791,799 $ 39,914,580 $ 1,137,460,597 Amounts individually evaluated for impairment 955,522 5,960,208 140,012 — 28,806 7,084,548 Amounts related to loans acquired with deteriorated credit quality 1,724,981 11,742,742 3,506,884 — — 16,974,607 Ending balance $ 232,040,341 $ 697,070,779 $ 103,673,447 $ 88,791,799 $ 39,943,386 $ 1,161,519,752 Included within the above loan amounts are acquired loans, both performing and purchased credit impaired, which are shown net of fair value discounts. The total acquired net loan amounts reflected in the above tables were $339.2 million and $350.5 million at December 31, 2017 and September 30, 2017 , respectively. The total remaining fair value discounts related to the acquired loans totaled $3.7 million and $4.1 million at December 31, 2017 and September 30, 2017 , respectively. |