Loans Receivable and Allowance for Loan Losses

Loans receivable at December 31, 2018 and 2017 are summarized as follows:



	December 31,
	2018		2017
	(In thousands)
Real estate loans:
One-to-four family	$	1,830,186	$	1,615,000
Multifamily and commercial	2,142,154		1,870,475
Construction	261,473		233,652
Commercial business loans	333,876		277,970
Consumer loans:
Home equity loans and advances	393,492		447,920
Other consumer loans	1,108		998
Total gross loans	4,962,289		4,446,015
Net deferred loan costs, fees and purchased premiums and discounts	16,893		12,633
Loans receivable	$	4,979,182	$	4,458,648

The Company had $8.1 million of fixed rate one-to-four family real estate loans held-for-sale at December 31, 2018. There were no loans held-for-sale at December 31, 2017.

(5) Loans Receivable and Allowance for Loan Losses (continued)

The Company sold $32.0 million of one-to-four family and fixed rate home equity loans to third parties during the year ended December 31, 2018. The Company sold $62.4 million and $28.6 million, of one-to-four family, fixed rate home equity and multifamily loans to third parties during the years ended September 30, 2017 and 2016, respectively. These loans were previously included in loans receivable. No loans were sold by the Company during the three months ended December 31, 2017.

The Company purchased $32.3 million, $20.5 million and $21.1 million, respectively, of one-to-four family and multifamily and commercial real estate loans during the years ended December 31, 2018, September 30, 2017 and 2016. The Company purchased $56.1 million of multifamily and commercial real estate loans during the three months ended December 31, 2017.

At December 31, 2018 and 2017, the carrying value of one-to four family real estate loans serviced by the Company for investors totaled $462.7 million and $478.8 million, respectively. These loans are not included in the Consolidated Statements of Financial Condition. Servicing income totaled $1.1 million for the year ended December 31, 2018, and $1.2 million for both the years ended September 30, 2017 and 2016. For the three months ended December 31, 2017 servicing income totaled $298,000.

The Company periodically enters into Guarantor Swaps with Freddie Mac which results in improved liquidity. The Company did not sell any loans to Freddie Mac in exchange for Freddie Mac Mortgage Participation Certificates during the years ended December 31, 2018 and September 30, 2017, or the three months ended December 31, 2017. For the year ended September 30, 2016, the Company sold $17.2 million of loans in exchange for Freddie Mac Mortgage Participation Certificates. The Company retained the servicing of these loans.

The Company has granted loans to certain officers and directors of the Company and its subsidiaries and to their associates. As of December 31, 2018 and 2017 such loans totaled approximately $1.4 million and $1.5 million, respectively. During the year ended December 31, 2018 and the three months ended December 31, 2017, the Bank granted no new loans to related parties. During the years ended September 30, 2017 and 2016, new loans totaling $390,000, and $115,000, respectively, were granted to related parties. These loans are performing in accordance with their original terms.

The following tables summarize the aging of loans receivable by portfolio segment at December 31, 2018 and 2017:



	December 31, 2018
	30-59 days		60-89 days		90 Days or more		Total past due		Current		Total
	(In thousands)
Real estate loans:
One-to-four family	$	8,384	$	1,518	$	819	$	10,721	$	1,819,465	$	1,830,186
Multifamily and commercial	1,870		1,425		154		3,449		2,138,705		2,142,154
Construction	—		—		—		—		261,473		261,473
Commercial business loans	208		279		911		1,398		332,478		333,876
Consumer loans:
Home equity loans and advances	1,550		173		905		2,628		390,864		393,492
Other consumer loans	—		—		—		—		1,108		1,108
Total gross loans	$	12,012	$	3,395	$	2,789	$	18,196	$	4,944,093	$	4,962,289

(5) Loans Receivable and Allowance for Loan Losses (continued)



	December 31, 2017
	30-59 days		60-89 days		90 Days or more		Total past due		Current		Total
	(In thousands)
Real estate loans:
One-to-four family	$	7,080	$	1,229	$	3,360	$	11,669	$	1,603,331	$	1,615,000
Multifamily and commercial	138		380		1,329		1,847		1,868,628		1,870,475
Construction	—		—		—		—		233,652		233,652
Commercial business loans	89		730		1,263		2,082		275,888		277,970
Consumer loans:
Home equity loans and advances	1,421		26		573		2,020		445,900		447,920
Other consumer loans	—		—		—		—		998		998
Total gross loans	$	8,728	$	2,365	$	6,525	$	17,618	$	4,428,397	$	4,446,015

The Company considers a loan to be delinquent when we have not received a payment within 30 days of its contractual due date. Generally, a loan is designated as a non-accrual loan when the payment of interest is 90 days or more in arrears of its contractual due date. The accrual of income on a non-accrual loan is reversed and discontinued until the outstanding payments in arrears have been collected and there is a sustained period of performance. The Company identifies loans that may need to be charged-off as a loss, by reviewing all delinquent loans, classified loans and other loans that management may have concerns about collectability. At December 31, 2018 and 2017, non-accrual loans totaled $2.8 million and $6.5 million, respectively.

At December 31, 2018 and 2017, there were no loans past due 90 days or more and still accruing interest.

The following table provides information with respect to our non-accrual loans at December 31, 2018 and 2017:



	December 31,
	2018		2017
	(In thousands)
Non-accrual loans:
Real estate loans:
One-to-four family	$	819	$	3,360
Multifamily and commercial	154		1,329
Commercial business loans	911		1,263
Consumer loans:
Home equity loans and advances	905		573
Total non-accrual loans	$	2,789	$	6,525

If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $126,000, $295,000, $713,000, and $61,000 for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017, respectively. The amount of cash basis interest income that was recognized on these loans during the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017 was $89,000, $104,000, $472,000, and $121,000, respectively.

We may obtain physical possession of real estate collateralizing a residential mortgage loan via foreclosure or through an in-substance repossession. As of December 31, 2018, we held one single-family property in real estate owned with a carrying value of $92,000 that was acquired through foreclosure on a residential mortgage loan. As of December 31, 2018 and 2017, we had 14 and

15 residential mortgage loans with carrying values of $1.6 million and $2.7 million, respectively, collateralized by residential real estate which were in the process of foreclosure.

(5) Loans Receivable and Allowance for Loan Losses (continued)

The Company maintains the allowance for loan losses through provisions for loan losses which are charged to income. Charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.

As part of the evaluation of the adequacy of the allowance for loan losses, management prepares an analysis each quarter that categorizes the entire loan portfolio by certain risk characteristics such as loan type (residential mortgage, commercial mortgage, construction, commercial, etc.) and loan risk rating.

When assigning a risk rating to a loan, management utilizes an eight-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4 (Pass), with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (Special Mention) or 6 (Substandard). Loans with adverse classifications are rated 7 (Doubtful) or 8 (Loss). The risk ratings are also confirmed through periodic loan review examinations, which are currently performed by both an independent third-party and the Company's internal loan review department. The Company requires an annual review be performed above certain dollar thresholds, depending on loan type, to help determine the appropriate risk rating. The risk ratings are also confirmed through periodic loan review examinations which are currently performed by both an independent third-party and the Company's internal loan review department. Results from examinations are presented to the Audit Committee of the Board of Directors.

Management estimates the amount of loan losses for loans collectively evaluated for impairment by applying quantitative loss factors to the loan segments at the risk rating level and applying qualitative adjustments to each loan segment at the portfolio level. Quantitative loss factors give consideration to historical loss experience and migration experience by loan type based upon an appropriate look-back period, adjusted for a loss emergence period. Qualitative adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies, impaired loans, charge-offs, recoveries and loan volumes, as well as national and local economic trends and conditions.

Qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and, as such, are evaluated from a risk level perspective relative to the risk levels present over the look-back period. The reserves resulting from the application of both the quantitative experience and qualitative factors are combined to arrive at the allowance for loan losses.

Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising or elevated unemployment, increasing vacancy rates, and increases in interest rates in the absence of economic improvement. Any one or a combination of these events may adversely affect a borrowers’ ability to repay their loan, resulting in increased delinquencies and loan losses. Accordingly, the Company has recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio. Management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level considering the current composition of the loan portfolio.

Although management believes that the Company has established and maintains the allowance for loan losses at appropriate levels, additional reserves may be necessary if future economic and other conditions differ substantially from the current operating environment. Management evaluates its estimates and assumptions on an ongoing basis and the estimates and assumptions are adjusted when facts and circumstances necessitate a re-valuation of the estimate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. In addition, regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment.

The Bank defines a loan as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. All multifamily and commercial real estate, construction, and commercial business loans with an outstanding balance of greater than $500,000 and not accruing, loans modified in a troubled debt restructuring (TDR), and other loans if there is specific information of a collateral shortfall are individually evaluated for impairment. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling costs.

The following table summarizes loans receivable and allowance for loan losses by portfolio segment and impairment method at December 31, 2018 and 2017:

(5) Loans Receivable and Allowance for Loan Losses (continued)



	December 31, 2018
	One-to-four family		Multifamily and commercial		Construction		Commercial business		Home equity loans and advances		Other consumer loans		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	537	$	—	$	—	$	366	$	12	$	—	$	—	$	915
Collectively evaluated for impairment	14,695		23,251		7,217		13,810		2,446		8		—		61,427
Total	$	15,232	$	23,251	$	7,217	$	14,176	$	2,458	$	8	$	—	$	62,342

Total loans:
Individually evaluated for impairment	$	9,048	$	2,695	$	—	$	2,944	$	3,100	$	—	$	—	$	17,787
Collectively evaluated for impairment	1,821,138		2,139,459		261,473		330,932		390,392		1,108		—		4,944,502
Total gross loans	$	1,830,186	$	2,142,154	$	261,473	$	333,876	$	393,492	$	1,108	$	—	$	4,962,289

(5) Loans Receivable and Allowance for Loan Losses (continued)



	December 31, 2017
	One-to-four family		Multifamily and commercial		Construction		Commercial business		Home equity loans and advances		Other consumer loans		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	423	$	28	$	—	$	80	$	15	$	—	$	—	$	546
Collectively evaluated for impairment	19,568		19,905		5,217		8,195		4,561		8		178		57,632
Total	$	19,991	$	19,933	$	5,217	$	8,275	$	4,576	$	8	$	178	$	58,178

Total loans:
Individually evaluated for impairment	$	11,644	$	3,693	$	—	$	4,263	$	2,591	$	—	$	—	$	22,191
Collectively evaluated for impairment	1,603,356		1,866,782		233,652		273,707		445,329		998		—		4,423,824
Total gross loans	$	1,615,000	$	1,870,475	$	233,652	$	277,970	$	447,920	$	998	$	—	$	4,446,015

Loan modifications to borrowers experiencing financial difficulties that are considered troubled debt restructurings ("TDRs") primarily involve the lowering of the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, the Company attempts to obtain additional collateral or guarantor support when modifying such loans. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

(5) Loans Receivable and Allowance for Loan Losses (continued)

The following tables present the number of loans modified as TDRs for the years ended December 31, 2018 , September 30, 2017 and 2016, and the three months ended December 31, 2017, along with their balances immediately prior to the modification date and post-modification. Post-modification recorded investment represents the net book balance immediately following modification.



	For the Year Ended December 31,					For the Three Months Ended December 31,
	2018					2017
	No. of Loans	Pre-modification recorded investment		Post-modification recorded investment		No. of Loans	Pre-modification recorded investment		Post-modification recorded investment
	( Dollars in thousands)
Troubled Debt Restructurings
Real estate loans:
One-to-four family	5	$	801	$	801	—	$	—	$	—
Multifamily and commercial	1	65		65		—	—		—
Commercial business loans	—	—		—		—	—		—
Consumer loans:
Home equity loans and advances	1	588		588		—	—		—
Total restructured loans	7	$	1,454	$	1,454	—	$	—	$	—



	For the Years Ended September 30,
	2017					2016
	No. of Loans	Pre-modification recorded investment		Post-modification recorded investment		No. of Loans	Pre-modification recorded investment		Post-modification recorded investment
	(Dollars in thousands)
Troubled Debt Restructurings
Real estate loans:
One-to-four family	3	$	548	$	548	—	$	—	$	—
Multifamily and commercial	1	3,964		3,964		—	—		—
Commercial business loans	1	18		18		3	255		255
Consumer loans:
Home equity loans and advances	2	248		248		1	103		103
Total restructured loans	7	$	4,778	$	4,778	4	$	358	$	358

The activity in the allowance for loan losses for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017 are as follows:

(5) Loans Receivable and Allowance for Loan Losses (continued)



	Year Ended December 31,			Three Months Ended December 31,			Years Ended September 30,
	2018			2017			2017			2016
	(In thousands)

Balance at beginning of period	$	58,178		$	54,633		$	51,867		$	56,948
Provision charged	6,677			3,400			6,426			417
Recoveries	707			188			584			721
Charge-offs	(3,220		)	(43		)	(4,244		)	(6,219		)
Balance at end of period	$	62,342		$	58,178		$	54,633		$	51,867

The activity in the allowance for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017 are as follows:



	For the Year Ended December 31, 2018
	One-to-four family			Multifamily and commercial			Construction		Commercial business			Home equity loans and advances			Other consumer loans			Unallocated			Total
	(In thousands)

Balance at beginning of period	$	19,991		$	19,933		$	5,217	$	8,275		$	4,576		$	8		$	178		$	58,178
Provision charged (credited)	(4,503		)	3,445			1,997		7,860			(1,949		)	5			(178		)	6,677
Recoveries	334			2			3		240			122			6			—			707
Charge-offs	(590		)	(129		)	—		(2,199		)	(291		)	(11		)	—			(3,220		)
Balance at end of period	$	15,232		$	23,251		$	7,217	$	14,176		$	2,458		$	8		$	—		$	62,342



	For the Three Months Ended December 31, 2017
	One-to-four family			Multifamily and commercial			Construction			Commercial business			Home equity loans and advances			Other consumer loans			Unallocated		Total
	(In thousands)

Balance at beginning of period	$	18,533		$	18,029		$	5,299		$	8,480		$	4,190		$	8		$	94	$	54,633
Provision charged (credited)	1,473			1,906			(82		)	(373		)	389			3			84		3,400
Recoveries	9			—			—			171			6			2			—		188
Charge-offs	(24		)	(2		)	—			(3		)	(9		)	(5		)	—		(43		)
Balance at end of period	$	19,991		$	19,933		$	5,217		$	8,275		$	4,576		$	8		$	178	$	58,178

(5) Loans Receivable and Allowance for Loan Losses (continued)



	For the Year Ended September 30, 2017
	One-to-four family			Multifamily and commercial			Construction			Commercial business			Home equity loans and advances			Other consumer loans			Unallocated			Total
	(In thousands)

Balance at beginning of period	$	18,638		$	17,390		$	5,960		$	5,721		$	4,052		$	11		$	95		$	51,867
Provision charged (credited)	1,029			1,644			(661		)	3,183			1,219			13			(1		)	6,426
Recoveries	268			75			—			182			59			—			—			584
Charge-offs	(1,402		)	(1,080		)	—			(606		)	(1,140		)	(16		)	—			(4,244		)
Balance at end of period	$	18,533		$	18,029		$	5,299		$	8,480		$	4,190		$	8		$	94		$	54,633



	For the Year Ended September 30, 2016
	One-to-four family			Multifamily and commercial			Construction			Commercial business			Home equity loans and advances			Other consumer loans			Unallocated			Total
	(In thousands)

Balance at beginning of period	$	16,442		$	20,352		$	6,248		$	7,094		$	6,111		$	4		$	697		$	56,948
Provision charged (credited)	5,534			(2,106		)	(43		)	(1,323		)	(1,061		)	18			(602		)	417
Recoveries	158			23			76			408			55			1			—			721
Charge-offs	(3,496		)	(879		)	(321		)	(458		)	(1,053		)	(12		)	—			(6,219		)
Balance at end of period	$	18,638		$	17,390		$	5,960		$	5,721		$	4,052		$	11		$	95		$	51,867

(5) Loans Receivable and Allowance for Loan Losses (continued)

The following table presents loans individually evaluated for impairment by loan segment:



	At December 31, 2018
	Recorded investment		Unpaid principal balance		Specific allowance
	(In thousands)
With no allowance recorded:
Real estate loans:
One-to-four family	$	4,156	$	5,307	$	—
Multifamily and commercial	2,695		3,482		—
Commercial business loans	2,285		2,374		—
Consumer loans:
Home equity loans and advances	2,511		2,866		—
	11,647		14,029		—
With a specific allowance recorded:
Real estate loans:
One-to-four family	4,892		4,939		537
Commercial business loans	659		768		366
Consumer loans:
Home equity loans and advances	589		589		12
	6,140		6,296		915
Total:
Real estate loans:
One-to-four family	9,048		10,246		537
Multifamily and commercial	2,695		3,482		—
Commercial business loans	2,944		3,142		366
Consumer loans:
Home equity loans and advances	3,100		3,455		12
Total loans	$	17,787	$	20,325	$	915

(5) Loans Receivable and Allowance for Loan Losses (continued)



	December 31, 2017
	Recorded investment		Unpaid principal balance		Specific allowance
	(In thousands)
With no allowance recorded:
Real estate loans:
One-to-four family	$	8,870	$	9,704	$	—
Multifamily and commercial	2,058		2,933		—
Commercial business loans	1,522		2,015		—
Consumer loans:
Home equity loans and advances	2,161		2,601		—
	14,611		17,253		—
With a specific allowance recorded:
Real estate loans:
One-to-four family	2,774		2,788		423
Multifamily and commercial	1,635		2,208		28
Commercial business loans	2,741		2,741		80
Consumer loans:
Home equity loans and advances	430		430		15
	7,580		8,167		546
Total:
Real estate loans:
One-to-four family	$	11,644	$	12,492	$	423
Multifamily and commercial	3,693		5,141		28
Commercial business loans	4,263		4,756		80
Consumer loans:
Home equity loans and advances	2,591		3,031		15
Total loans	$	22,191	$	25,420	$	546

Specific allocations of the allowance for loan losses attributable to impaired loans totaled $915,000 and $546,000 at December 31, 2018 and December 31, 2017, respectively. At December 31, 2018 and December 31, 2017, impaired loans for which there was no related allowance for loan losses totaled $11.6 million and $14.6 million, respectively.

(5) Loans Receivable and Allowance for Loan Losses (continued)

The following table presents interest income recognized for loans individually evaluated for impairment at December 31, 2018 and 2017, by loan segment, for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017:



	For the Year Ended December 31,				For the Three Months Ended December 31,
	2018				2017
	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
	(In thousands)
Real estate loans:
One-to-four family	$	10,224	$	445	$	14,015	$	110
Multifamily and commercial	2,712		155		4,087		39
Commercial business loans	3,060		118		3,870		46
Consumer loans:
Home equity loans and advances	3,361		173		3,618		35
Totals	$	19,357	$	891	$	25,590	$	230



	For the Years Ended September 30,
	2017				2016
	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
	(In thousands)
Real estate loans:
One-to-four family	$	15,027	$	469	$	18,119	$	565
Multifamily and commercial	4,328		279		9,344		57
Construction	—		—		505		—
Commercial business loans	3,796		195		4,514		110
Consumer loans:
Home equity loans and advances	3,903		136		3,446		157
Totals	$	27,054	$	1,079	$	35,928	$	889

The recorded investment in TDRs totaled $16.0 million at December 31, 2018, of which one loan totaling $101,000 was over 90 days past due, and seven loans totaling $1.0 million were 30-59 days past due. The remaining loans modified were current at the time of restructuring and have complied with the terms of their restructure agreement at December 31, 2018. The recorded investment in TDRs totaled $17.6 million at December 31, 2017, of which two loans totaling $425,000 were over 90 days past due. The remaining loans modified were current at the time of restructuring and have complied with the terms of their restructure agreement at December 31, 2017. The recorded investment in TDRs totaled $21.1 million at September 30, 2017, of which seven loans totaling $1.0 million were over 90 days past due. The remaining loans modified were current at the time of restructuring and have complied with the terms of their restructure agreement at September 30, 2017.

(5) Loans Receivable and Allowance for Loan Losses (continued)

The following table presents loans receivable by credit quality risk indicator and by loan segment at December 31, 2018 and 2017:



	December 31, 2018
	One-to-four family		Multifamily and commercial		Construction		Commercial business		Home equity loans and advances		Other consumer loans		Total
	(In thousands)

Pass	$	1,826,066	$	2,128,680	$	261,473	$	320,451	$	392,092	$	1,108	$	4,929,870
Special mention	—		—		—		9,074		—		—		9,074
Substandard	4,120		13,474		—		4,351		1,400		—		23,345
Doubtful	—		—		—		—		—		—		—
Total	$	1,830,186	$	2,142,154	$	261,473	$	333,876	$	393,492	$	1,108	$	4,962,289



	December 31, 2017
	One-to-four family		Multifamily and commercial		Construction		Commercial business		Home equity loans and advances		Other consumer loans		Total
	(In thousands)

Pass	$	1,605,413	$	1,851,037	$	233,652	$	268,355	$	446,264	$	998	$	4,405,719
Special mention	—		4,782		—		3,678		—		—		8,460
Substandard	9,587		14,656		—		5,937		1,656		—		31,836
Doubtful	—		—		—		—		—		—		—
Total	$	1,615,000	$	1,870,475	$	233,652	$	277,970	$	447,920	$	998	$	4,446,015