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: June 30, 2018 September 30, 2017 (Dollars in thousands) Real estate loans: One- to four-family: Originated $ 3,931,251 $ 3,959,232 Correspondent purchased 2,514,929 2,445,311 Bulk purchased 309,837 351,705 Construction 27,565 30,647 Total 6,783,582 6,786,895 Commercial: Permanent 274,410 183,030 Construction 44,645 86,952 Total 319,055 269,982 Total real estate loans 7,102,637 7,056,877 Consumer loans: Home equity 119,079 122,066 Other 4,453 3,808 Total consumer loans 123,532 125,874 Total loans receivable 7,226,169 7,182,751 Less: ACL 8,344 8,398 Discounts/unearned loan fees 25,124 24,962 Premiums/deferred costs (46,683 ) (45,680 ) $ 7,239,384 $ 7,195,071 Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial real estate loans. The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans 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 currently 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 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. The Bank does not originate construction loans to builders for speculative purposes. 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 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 June 30, 2018 and September 30, 2017 , all loans 90 or more days delinquent were on nonaccrual status. June 30, 2018 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 $ 7,614 $ 5,028 $ 12,642 $ 3,932,144 $ 3,944,786 One- to four-family - correspondent 1,776 880 2,656 2,547,714 2,550,370 One- to four-family - bulk purchased 3,802 2,612 6,414 304,863 311,277 Commercial real estate 41 — 41 317,722 317,763 Consumer - home equity 341 423 764 118,315 119,079 Consumer - other 22 2 24 4,429 4,453 $ 13,596 $ 8,945 $ 22,541 $ 7,225,187 $ 7,247,728 September 30, 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 $ 13,216 $ 5,500 $ 18,716 $ 3,956,598 $ 3,975,314 One- to four-family - correspondent 1,855 92 1,947 2,477,916 2,479,863 One- to four-family - bulk purchased 3,233 3,399 6,632 346,807 353,439 Commercial real estate — — — 268,979 268,979 Consumer - home equity 467 406 873 121,193 122,066 Consumer - other 33 4 37 3,771 3,808 $ 18,804 $ 9,401 $ 28,205 $ 7,175,264 $ 7,203,469 The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2018 and September 30, 2017 was $2.8 million and $4.3 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 $897 thousand at June 30, 2018 and $1.4 million at September 30, 2017 . The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented. June 30, 2018 September 30, 2017 (Dollars in thousands) One- to four-family - originated $ 7,490 $ 10,054 One- to four-family - correspondent 977 1,804 One- to four-family - bulk purchased 2,964 4,264 Commercial real estate — — Consumer - home equity 492 519 Consumer - other 2 4 $ 11,925 $ 16,645 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. June 30, 2018 September 30, 2017 Special Mention Substandard Special Mention Substandard (Dollars in thousands) One- to four-family - originated $ 8,867 $ 22,892 $ 7,031 $ 30,059 One- to four-family - correspondent 885 3,497 261 3,800 One- to four-family - bulk purchased — 6,765 — 8,005 Commercial real estate 41 — — — Consumer - home equity 286 889 9 1,032 Consumer - other — 3 — 4 $ 10,079 $ 34,046 $ 7,301 $ 42,900 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 2018, 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. June 30, 2018 September 30, 2017 Credit Score LTV Credit Score LTV One- to four-family - originated 768 63 % 767 63 % One- to four-family - correspondent 764 67 764 68 One- to four-family - bulk purchased 759 62 757 63 Consumer - home equity 755 19 755 19 766 63 765 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. During the fourth quarter of fiscal year 2017, management refined its methodology for assessing whether a loan modification qualifies as a TDR which, though not material, resulted in fewer loans being classified as TDRs in the current fiscal year. For the Three Months Ended For the Nine Months Ended June 30, 2018 June 30, 2018 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 1 $ 40 $ 47 4 $ 207 $ 223 One- to four-family - correspondent 1 97 97 1 97 97 One- to four-family - bulk purchased — — — — — — Commercial real estate — — — — — — Consumer - home equity — — — — — — Consumer - other — — — — — — 2 $ 137 $ 144 5 $ 304 $ 320 For the Three Months Ended For the Nine Months Ended June 30, 2017 June 30, 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 28 $ 2,447 $ 2,518 109 $ 11,735 $ 12,195 One- to four-family - correspondent 7 1,435 1,443 10 1,695 1,704 One- to four-family - bulk purchased 1 344 348 3 1,031 1,048 Commercial real estate — — — — — — Consumer - home equity 3 51 53 17 368 380 Consumer - other — — — — — — 39 $ 4,277 $ 4,362 139 $ 14,829 $ 15,327 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 Nine Months Ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 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 1 $ 34 14 $ 1,439 20 $ 1,288 36 $ 3,486 One- to four-family - correspondent — — 1 119 1 124 1 119 One- to four-family - bulk purchased — — 1 354 3 1,040 1 354 Commercial real estate — — — — — — — — Consumer - home equity — — 6 93 4 133 15 432 Consumer - other — — — — — — — — 1 $ 34 22 $ 2,005 28 $ 2,585 53 $ 4,391 Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented. All impaired loans were individually evaluated for loss and all losses were charged-off, resulting in no related ACL for these loans. June 30, 2018 September 30, 2017 Unpaid Unpaid Recorded Principal Recorded Principal Investment Balance Investment Balance (Dollars in thousands) One- to four-family - originated $ 20,662 $ 21,329 $ 30,251 $ 30,953 One- to four-family - correspondent 2,926 3,023 3,800 3,771 One- to four-family - bulk purchased 6,041 7,005 7,403 8,606 Commercial real estate — — — — Consumer - home equity 535 767 775 997 Consumer - other — 29 — 24 $ 30,164 $ 32,153 $ 42,229 $ 44,351 The following information pertains to impaired loans, by class, for the periods presented. During the fourth quarter of fiscal year 2017, management refined its methodology for classifying loans as impaired. The change resulting from this refinement was immaterial. Impaired loans include loans partially charged-off and TDRs. For the Three Months Ended For the Nine Months Ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 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 $ 21,939 $ 236 $ 24,342 $ 230 $ 25,254 $ 784 $ 23,478 $ 653 One- to four-family - correspondent 3,055 24 3,497 32 3,351 88 3,463 91 One- to four-family - bulk purchased 6,113 48 9,950 49 6,563 143 10,490 144 Commercial real estate — — — — — — — — Consumer - home equity 552 10 1,095 12 609 29 1,043 75 Consumer - other — — 4 — — — 8 — 31,659 318 38,888 323 35,777 1,044 38,482 963 With an allowance recorded One- to four-family - originated — — 12,787 117 — — 12,878 367 One- to four-family - correspondent — — 2,405 20 — — 2,150 52 One- to four-family - bulk purchased — — 1,136 7 — — 1,358 17 Commercial real estate — — — — — — — — Consumer - home equity — — 444 4 — — 525 33 Consumer - other — — 12 — — — 12 — — — 16,784 148 — — 16,923 469 Total One- to four-family - originated 21,939 236 37,129 347 25,254 784 36,356 1,020 One- to four-family - correspondent 3,055 24 5,902 52 3,351 88 5,613 143 One- to four-family - bulk purchased 6,113 48 11,086 56 6,563 143 11,848 161 Commercial real estate — — — — — — — — Consumer - home equity 552 10 1,539 16 609 29 1,568 108 Consumer - other — — 16 — — — 20 — $ 31,659 $ 318 $ 55,672 $ 471 $ 35,777 $ 1,044 $ 55,405 $ 1,432 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 June 30, 2018 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 3,156 $ 2,034 $ 1,000 $ 6,190 $ 2,038 $ 162 $ 8,390 Charge-offs (51 ) — — (51 ) — (3 ) (54 ) Recoveries 4 — — 4 — 4 8 Provision for credit losses (80 ) (111 ) — (191 ) 192 (1 ) — Ending balance $ 3,029 $ 1,923 $ 1,000 $ 5,952 $ 2,230 $ 162 $ 8,344 For the Nine Months Ended June 30, 2018 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 3,173 $ 1,922 $ 1,000 $ 6,095 $ 2,112 $ 191 $ 8,398 Charge-offs (122 ) (128 ) — (250 ) — (38 ) (288 ) Recoveries 21 — 196 217 — 17 234 Provision for credit losses (43 ) 129 (196 ) (110 ) 118 (8 ) — Ending balance $ 3,029 $ 1,923 $ 1,000 $ 5,952 $ 2,230 $ 162 $ 8,344 For the Three Months Ended June 30, 2017 One- to Four-Family Correspondent Bulk Commercial Originated Purchased Purchased Total Real Estate Consumer Total (Dollars in thousands) Beginning balance $ 3,351 $ 1,940 $ 1,000 $ 6,291 $ 1,885 $ 271 $ 8,447 Charge-offs (4 ) — (25 ) (29 ) — (12 ) (41 ) Recoveries 3 — 69 72 — 8 80 Provision for credit losses (128 ) (24 ) (44 ) (196 ) 204 (8 ) — Ending balance $ 3,222 $ 1,916 $ 1,000 $ 6,138 $ 2,089 $ 259 $ 8,486 For the Nine Months Ended June 30, 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 (45 ) — (73 ) (118 ) — (37 ) (155 ) Recoveries 3 — 69 72 — 29 101 Provision for credit losses (664 ) (186 ) (61 ) (911 ) 881 30 — Ending balance $ 3,222 $ 1,916 $ 1,000 $ 6,138 $ 2,089 $ 259 $ 8,486 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. June 30, 2018 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 $ 3,924,124 $ 2,547,444 $ 305,236 $ 6,776,804 $ 317,763 $ 122,997 $ 7,217,564 Recorded investment in loans individually evaluated for impairment 20,662 2,926 6,041 29,629 — 535 30,164 $ 3,944,786 $ 2,550,370 $ 311,277 $ 6,806,433 $ 317,763 $ 123,532 $ 7,247,728 ACL for loans collectively evaluated for impairment $ 3,029 $ 1,923 $ 1,000 $ 5,952 $ 2,230 $ 162 $ 8,344 September 30, 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 $ 3,945,063 $ 2,476,063 $ 346,035 $ 6,767,161 $ 268,979 $ 125,100 $ 7,161,240 Recorded investment in loans individually evaluated for impairment 30,251 3,800 7,404 41,455 — 774 42,229 $ 3,975,314 $ 2,479,863 $ 353,439 $ 6,808,616 $ 268,979 $ 125,874 $ 7,203,469 ACL for loans collectively evaluated for impairment $ 3,173 $ 1,922 $ 1,000 $ 6,095 $ 2,112 $ 191 $ 8,398 |