Loans Receivable And Allowance For Credit Losses | LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES Loans receivable, net at the dates presented is summarized as follows: March 31, 2017 September 30, 2016 (Dollars in thousands) Real estate loans: One- to four-family: Originated $ 4,025,985 $ 4,005,615 Correspondent purchased 2,396,663 2,206,072 Bulk purchased 385,700 416,653 Construction 30,818 39,430 Total 6,839,166 6,667,770 Commercial: Permanent 102,806 110,768 Construction 116,471 43,375 Total 219,277 154,143 Total real estate loans 7,058,443 6,821,913 Consumer loans: Home equity 119,434 123,345 Other 4,469 4,264 Total consumer loans 123,903 127,609 Total loans receivable 7,182,346 6,949,522 Less: ACL 8,447 8,540 Discounts/unearned loan fees 25,318 24,933 Premiums/deferred costs (45,140 ) (41,975 ) $ 7,193,721 $ 6,958,024 Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business, resulting in a loan concentration in residential first mortgage loans. The Bank purchases one- to four-family loans, on a loan-by-loan basis, from a select group of correspondent lenders. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial real estate loans. As a result of our one- to four-family lending activities, the Bank has a concentration of loans secured by real property located in Kansas and Missouri. One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function and approved by our Board of Directors. The underwriting standards for loans purchased from correspondent and nationwide lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters. The Bank also originates construction-to-permanent loans secured by one- to four-family residential real estate. Construction loans are obtained by homeowners who will occupy the property when construction is complete. Construction loans to builders for speculative purposes are not permitted by the Bank's lending policies. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided. Commercial real estate loans - The Bank's commercial real estate loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 80% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.25 . Appraisals on properties securing these loans are performed by independent state certified fee appraisers. Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, auto loans, and loans secured by savings deposits. The Bank also originates a very limited amount of unsecured loans. The Bank does not originate any consumer loans on an indirect basis, such as contracts purchased from retailers of goods or services which have extended credit to their customers. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position. The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount. Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial real estate. The one- to four-family and consumer loan portfolios are further segmented into classes for purposes of providing disaggregated information about the credit quality of the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, and consumer - other. The one- to four-family - correspondent purchased class was segregated from the one- to four-family originated class in the current fiscal year due to the size of the portfolio along with the loan product composition, geographic locations and inherent credit risks within the portfolio. The prior period information presented within this note has been conformed to the new loan class presentation. The Bank's primary credit quality indicators for the one- to four-family and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the commercial real estate and consumer - other loan portfolios are delinquency status and asset classifications. The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs. At March 31, 2017 and September 30, 2016 , all loans 90 or more days delinquent were on nonaccrual status. March 31, 2017 90 or More Days Total Total 30 to 89 Days Delinquent or Delinquent Current Recorded Delinquent in Foreclosure Loans Loans Investment (Dollars in thousands) One- to four-family - originated $ 10,853 $ 5,333 $ 16,186 $ 4,025,590 $ 4,041,776 One- to four-family - correspondent 749 908 1,657 2,428,961 2,430,618 One- to four-family - bulk purchased 3,556 7,178 10,734 376,937 387,671 Commercial real estate — — — 218,200 218,200 Consumer - home equity 761 423 1,184 118,250 119,434 Consumer - other 34 7 41 4,428 4,469 $ 15,953 $ 13,849 $ 29,802 $ 7,172,366 $ 7,202,168 September 30, 2016 90 or More Days Total Total 30 to 89 Days Delinquent or Delinquent Current Recorded Delinquent in Foreclosure Loans Loans Investment (Dollars in thousands) One- to four-family - originated $ 13,545 $ 8,153 $ 21,698 $ 4,007,012 $ 4,028,710 One- to four-family - correspondent 3,389 992 4,381 2,233,941 2,238,322 One- to four-family - bulk purchased 5,082 7,380 12,462 406,379 418,841 Commercial real estate — — — 153,082 153,082 Consumer - home equity 635 520 1,155 122,190 123,345 Consumer - other 62 9 71 4,193 4,264 $ 22,713 $ 17,054 $ 39,767 $ 6,926,797 $ 6,966,564 The recorded investment of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2017 and September 30, 2016 was $7.2 million and $5.7 million , respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $2.7 million at March 31, 2017 and $2.5 million at September 30, 2016 . The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented. March 31, 2017 September 30, 2016 (Dollars in thousands) One- to four-family - originated $ 15,974 $ 17,086 One- to four-family - correspondent 1,497 3,788 One- to four-family - bulk purchased 7,991 7,411 Commercial real estate — — Consumer - home equity 770 848 Consumer - other 7 10 $ 26,239 $ 29,143 In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows: • Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories. • Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable. • Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted. The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at the dates presented. Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. March 31, 2017 September 30, 2016 Special Mention Substandard Special Mention Substandard (Dollars in thousands) One- to four-family - originated $ 9,081 $ 29,167 $ 10,242 $ 27,818 One- to four-family - correspondent 365 5,269 2,496 5,168 One- to four-family - bulk purchased 867 11,069 1,156 11,480 Commercial real estate — — — — Consumer - home equity 41 1,463 54 1,431 Consumer - other — 17 8 16 $ 10,354 $ 46,985 $ 13,956 $ 45,913 The following table shows the weighted average credit score and weighted average LTV for one- to four-family loans and consumer home equity loans at the dates presented. Borrower credit scores are intended to provide an indication as to the likelihood that a borrower will repay their debts. Credit scores are updated at least semiannually, with the last update in March 2017, from a nationally recognized consumer rating agency. The LTV ratios provide an estimate of the extent to which the Bank may incur a loss on any given loan that may go into foreclosure. The consumer - home equity LTV does not take into account the first lien position, if applicable. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination. March 31, 2017 September 30, 2016 Credit Score LTV Credit Score LTV One- to four-family - originated 767 63 % 766 63 % One- to four-family - correspondent 764 68 764 68 One- to four-family - bulk purchased 754 63 753 64 Consumer - home equity 756 19 755 20 765 64 764 64 Troubled Debt Restructurings ("TDRs") - The following tables present the recorded investment prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investment at the end of the periods indicated. Any increase in the recorded investment at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances. For the Three Months Ended For the Six Months Ended March 31, 2017 March 31, 2017 Number Pre- Post- Number Pre- Post- of Restructured Restructured of Restructured Restructured Contracts Outstanding Outstanding Contracts Outstanding Outstanding (Dollars in thousands) One- to four-family - originated 43 $ 5,360 $ 5,492 81 $ 9,288 $ 9,677 One- to four-family - correspondent 3 260 261 3 260 261 One- to four-family - purchased 2 687 700 2 687 700 Commercial real estate — — — — — — Consumer - home equity 6 111 115 14 317 327 Consumer - other — — — — — — 54 $ 6,418 $ 6,568 100 $ 10,552 $ 10,965 For the Three Months Ended For the Six Months Ended March 31, 2016 March 31, 2016 Number Pre- Post- Number Pre- Post- of Restructured Restructured of Restructured Restructured Contracts Outstanding Outstanding Contracts Outstanding Outstanding (Dollars in thousands) One- to four-family - originated 28 $ 3,433 $ 3,542 58 $ 6,539 $ 6,707 One- to four-family - correspondent 4 826 833 4 826 833 One- to four-family - bulk purchased — — — 1 123 122 Commercial real estate — — — — — — Consumer - home equity 1 3 3 5 64 64 Consumer - other 1 8 8 1 8 8 34 $ 4,270 $ 4,386 69 $ 7,560 $ 7,734 The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured. For the Three Months Ended For the Six Months Ended March 31, 2017 March 31, 2016 March 31, 2017 March 31, 2016 Number of Recorded Number of Recorded Number of Recorded Number of Recorded Contracts Investment Contracts Investment Contracts Investment Contracts Investment (Dollars in thousands) One- to four-family - originated 11 $ 1,069 16 $ 1,802 22 $ 2,047 27 $ 2,602 One- to four-family - correspondent — — — — — — — — One- to four-family - bulk purchased — — — — — — — — Commercial real estate — — — — — — — — Consumer - home equity 5 224 2 13 9 339 4 91 Consumer - other — — — — — — — — 16 $ 1,293 18 $ 1,815 31 $ 2,386 31 $ 2,693 Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. March 31, 2017 September 30, 2016 Unpaid Unpaid Recorded Principal Related Recorded Principal Related Investment Balance ACL Investment Balance ACL (Dollars in thousands) With no related allowance recorded One- to four-family - originated $ 24,560 $ 25,243 $ — $ 22,982 $ 23,640 $ — One- to four-family - correspondent 3,841 3,828 — 2,963 2,950 — One- to four-family - bulk purchased 10,821 12,388 — 10,985 12,684 — Commercial real estate — — — — — — Consumer - home equity 1,164 1,372 — 1,014 1,230 — Consumer - other 5 26 — 10 42 — 40,391 42,857 — 37,954 40,546 — With an allowance recorded One- to four-family - originated 12,381 12,415 72 13,430 13,476 125 One- to four-family - correspondent 1,993 1,991 7 2,662 2,664 4 One- to four-family - bulk purchased 1,279 1,249 19 1,650 1,627 49 Commercial real estate — — — — — — Consumer - home equity 394 394 17 548 548 38 Consumer - other 13 13 2 6 6 1 16,060 16,062 117 18,296 18,321 217 Total One- to four-family - originated 36,941 37,658 72 36,412 37,116 125 One- to four-family - correspondent 5,834 5,819 7 5,625 5,614 4 One- to four-family - bulk purchased 12,100 13,637 19 12,635 14,311 49 Commercial real estate — — — — — — Consumer - home equity 1,558 1,766 17 1,562 1,778 38 Consumer - other 18 39 2 16 48 1 $ 56,451 $ 58,919 $ 117 $ 56,250 $ 58,867 $ 217 The following information pertains to impaired loans, by class, for the periods presented. For the Three Months Ended For the Six Months Ended March 31, 2017 March 31, 2016 March 31, 2017 March 31, 2016 Average Interest Average Interest Average Interest Average Interest Recorded Income Recorded Income Recorded Income Recorded Income Investment Recognized Investment Recognized Investment Recognized Investment Recognized (Dollars in thousands) With no related allowance recorded One- to four-family - originated $ 23,825 $ 218 $ 11,381 $ 119 $ 23,139 $ 423 $ 11,059 $ 229 One- to four-family - correspondent 4,045 35 203 3 3,498 59 165 6 One- to four-family - bulk purchased 10,877 49 11,637 49 10,846 95 11,218 100 Commercial real estate — — — — — — — — Consumer - home equity 1,080 33 636 15 1,030 63 595 23 Consumer - other 10 — 14 — 10 — 12 — 39,837 335 23,871 186 38,523 640 23,049 358 With an allowance recorded One- to four-family - originated 12,145 125 25,437 256 12,859 250 26,089 507 One- to four-family - correspondent 1,477 11 2,216 16 1,982 32 1,783 30 One- to four-family - bulk purchased 1,481 5 1,515 7 1,473 10 2,601 14 Commercial real estate — — — — — — — — Consumer - home equity 505 14 957 15 553 29 963 26 Consumer - other 12 — 17 — 12 — 14 — 15,620 155 30,142 294 16,879 321 31,450 577 Total One- to four-family - originated 35,970 343 36,818 375 35,998 673 37,148 736 One- to four-family - correspondent 5,522 46 2,419 19 5,480 91 1,948 36 One- to four-family - bulk purchased 12,358 54 13,152 56 12,319 105 13,819 114 Commercial real estate — — — — — — — — Consumer - home equity 1,585 47 1,593 30 1,583 92 1,558 49 Consumer - other 22 — 31 — 22 — 26 — $ 55,457 $ 490 $ 54,013 $ 480 $ 55,402 $ 961 $ 54,499 $ 935 Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, and the ending balance of ACL based on the Company's impairment methodology. For the Three Months Ended March 31, 2017 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 3,743 $ 2,064 $ 1,012 $ 6,819 $ 1,495 $ 207 $ 8,521 Charge-offs (17 ) — (48 ) (65 ) — (17 ) (82 ) Recoveries — — — — — 8 8 Provision for credit losses (375 ) (124 ) 36 (463 ) 390 73 — Ending balance $ 3,351 $ 1,940 $ 1,000 $ 6,291 $ 1,885 $ 271 $ 8,447 For the Six Months Ended March 31, 2017 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 3,928 $ 2,102 $ 1,065 $ 7,095 $ 1,208 $ 237 $ 8,540 Charge-offs (41 ) — (48 ) (89 ) — (25 ) (114 ) Recoveries — — — — — 21 21 Provision for credit losses (536 ) (162 ) (17 ) (715 ) 677 38 — Ending balance $ 3,351 $ 1,940 $ 1,000 $ 6,291 $ 1,885 $ 271 $ 8,447 For the Three Months Ended March 31, 2016 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 4,812 $ 2,020 $ 1,290 $ 8,122 $ 801 $ 278 $ 9,201 Charge-offs (17 ) — (38 ) (55 ) — (20 ) (75 ) Recoveries 39 — 18 57 — 10 67 Provision for credit losses (258 ) 243 (27 ) (42 ) 36 6 — Ending balance $ 4,576 $ 2,263 $ 1,243 $ 8,082 $ 837 $ 274 $ 9,193 For the Six Months Ended March 31, 2016 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 4,865 $ 2,115 $ 1,434 $ 8,414 $ 742 $ 287 $ 9,443 Charge-offs (74 ) — (213 ) (287 ) — (38 ) (325 ) Recoveries 42 — 18 60 — 15 75 Provision for credit losses (257 ) 148 4 (105 ) 95 10 — Ending balance $ 4,576 $ 2,263 $ 1,243 $ 8,082 $ 837 $ 274 $ 9,193 The following is a summary of the loan portfolio and related ACL balances, at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method. There was no ACL for loans individually evaluated for impairment at either date as all losses were charged-off. March 31, 2017 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Recorded investment in loans collectively evaluated for impairment $ 4,015,889 $ 2,426,776 $ 376,595 $ 6,819,260 $ 218,200 $ 122,613 $ 7,160,073 Recorded investment in loans individually evaluated for impairment 25,887 3,842 11,076 40,805 — 1,290 42,095 $ 4,041,776 $ 2,430,618 $ 387,671 $ 6,860,065 $ 218,200 $ 123,903 $ 7,202,168 ACL for loans collectively evaluated for impairment $ 3,351 $ 1,940 $ 1,000 $ 6,291 $ 1,885 $ 271 $ 8,447 September 30, 2016 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Recorded investment in loans collectively evaluated for impairment $ 4,003,750 $ 2,233,347 $ 407,833 $ 6,644,930 $ 153,082 $ 126,504 $ 6,924,516 Recorded investment in loans individually evaluated for impairment 24,960 4,975 11,008 40,943 — 1,105 42,048 $ 4,028,710 $ 2,238,322 $ 418,841 $ 6,685,873 $ 153,082 $ 127,609 $ 6,966,564 ACL for loans collectively evaluated for impairment $ 3,928 $ 2,102 $ 1,065 $ 7,095 $ 1,208 $ 237 $ 8,540 |