LOANS RECEIVABLE, NET

Year-end loans receivable were as follows:



	September 30, 2017			September 30, 2016
	(Dollars in Thousands)
1-4 Family Real Estate	$	196,706		$	162,298
Commercial and Multi-Family Real Estate	585,510			422,932
Agricultural Real Estate	61,800			63,612
Consumer	163,004			37,094
Commercial Operating	35,759			31,271
Agricultural Operating	33,594			37,083
Premium Finance	250,459			171,604
Total Loans Receivable	1,326,832			925,894

Allowance for Loan Losses	(7,534		)	(5,635		)
Net Deferred Loan Origination Fees	(1,461		)	(789		)
Total Loans Receivable, Net	$	1,317,837		$	919,470

Annual activity in the allowance for loan losses was as follows:



Year ended September 30,	2017			2016			2015
	(Dollars in Thousands)
Beginning balance	$	5,635		$	6,255		$	5,397
Provision for loan losses	10,589			4,605			1,465
Recoveries	307			147			123
Charge offs	(8,997		)	(5,372		)	(730		)
Ending balance	$	7,534		$	5,635		$	6,255

Allowance for Loan Losses and Recorded Investment in loans at September 30, 2017 and 2016 were as follows:



	1-4 Family Real Estate		Commercial and Multi-Family Real Estate			Agricultural Real Estate		Consumer			Commercial Operating			Agricultural Operating			Premium Finance			Unallocated			Total
	(Dollars in Thousands)
Year Ended September 30, 2017
Allowance for loan losses:
Beginning balance	$	654	$	2,198		$	142	$	51		$	117		$	1,332		$	588		$	553		$	5,635
Provision (recovery) for loan losses	149		610			1,248		6,830			1,165			(160		)	773			(26		)	10,589
Charge offs	—		(138		)	—		(7,084		)	(1,149		)	—			(626		)	—			(8,997		)
Recoveries	—		—			—		209			25			12			61			—			307
Ending balance	$	803	$	2,670		$	1,390	$	6		$	158		$	1,184		$	796		$	527		$	7,534

Ending balance: individually evaluated for impairment	—		—			—		—			—			—			—			—			—
Ending balance: collectively evaluated for impairment	803		2,670			1,390		6			158			1,184			796			527			7,534
Total	$	803	$	2,670		$	1,390	$	6		$	158		$	1,184		$	796		$	527		$	7,534

Loans:
Ending balance: individually evaluated for impairment	72		1,109			—		—			—			—			—			—			1,181
Ending balance: collectively evaluated for impairment	196,634		584,401			61,800		163,004			35,759			33,594			250,459			—			1,325,651
Total	$	196,706	$	585,510		$	61,800	$	163,004		$	35,759		$	33,594		$	250,459		$	—		$	1,326,832



	1-4 Family Real Estate			Commercial and Multi-Family Real Estate			Agricultural Real Estate			Consumer			Commercial Operating			Agricultural Operating			Premium Finance			Unallocated			Total
	(Dollars in Thousands)
Year Ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	278		$	1,187		$	163		$	20		$	28		$	3,537		$	293		$	749		$	6,255
Provision (recovery) for loan losses	408			1,369			(21		)	748			338			1,045			914			(196		)	4,605
Charge offs	(32		)	(385		)	—			(728		)	(249		)	(3,252		)	(726		)	—			(5,372		)
Recoveries	—			27			—			11			—			2			107			—			147
Ending balance	$	654		$	2,198		$	142		$	51		$	117		$	1,332		$	588		$	553		$	5,635


Ending balance: individually evaluated for impairment	10			—			—			—			—			—			—			—			10
Ending balance: collectively evaluated for impairment	644			2,198			142			51			117			1,332			588			553			5,625
Total	$	654		$	2,198		$	142		$	51		$	117		$	1,332		$	588		$	553		$	5,635

Loans:
Ending balance: individually evaluated for impairment	162			433			—			—			—			—			—			—			595
Ending balance: collectively evaluated for impairment	162,136			422,499			63,612			37,094			31,271			37,083			171,604			—			925,299
Total	$	162,298		$	422,932		$	63,612		$	37,094		$	31,271		$	37,083		$	171,604		$	—		$	925,894

The asset classification of loans at September 30, 2017, and 2016, were as follows:



September 30, 2017	1-4 Family Real Estate		Commercial and Multi-Family Real Estate		Agricultural Real Estate		Consumer		Commercial Operating		Agricultural Operating		Premium Finance		Total
	(Dollars in Thousands)
Pass	$	195,838	$	574,730	$	27,376	$	163,004	$	35,759	$	18,394	$	250,459	$	1,265,560
Watch	525		10,200		2,006		—		—		4,541		—		17,272
Special Mention	247		201		2,939		—		—		—		—		3,387
Substandard	96		379		29,479		—		—		10,659		—		40,613
Doubtful	—		—		—		—		—		—		—		—
	$	196,706	$	585,510	$	61,800	$	163,004	$	35,759	$	33,594	$	250,459	$	1,326,832



September 30, 2016	1-4 Family Real Estate		Commercial and Multi-Family Real Estate		Agricultural Real Estate		Consumer		Commercial Operating		Agricultural Operating		Premium Finance		Total
	(Dollars in Thousands)
Pass	$	161,255	$	421,577	$	34,421	$	37,094	$	30,574	$	19,669	$	171,604	$	876,194
Watch	200		72		2,934		—		184		4,625		—		8,015
Special Mention	666		962		25,675		—		—		5,407		—		32,710
Substandard	177		321		582		—		513		7,382		—		8,975
Doubtful	—		—		—		—		—		—		—		—
	$	162,298	$	422,932	$	63,612	$	37,094	$	31,271	$	37,083	$	171,604	$	925,894

Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's regulator, the Office of the Comptroller of the Currency (the “OCC”), to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan classification and risk rating definitions are as follows:

Pass- A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.

Watch- A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.

Special Mention- Special mention assets are a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.

The adverse classifications are as follows:

Substandard- A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.

Doubtful- A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate.

Loss- A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

Generally, when a loan becomes delinquent 90 days or more for retail bank loans or when the collection of principal or interest becomes doubtful, the Company will place the loan on a non-accrual status and, as a result, previously accrued interest income on the loan is reversed against current income. Specialty finance loans and Payment segment loans are generally not placed on non-accrual status but written off when the collection of principal and interest become doubtful.

Past due loans at September 30, 2017 and 2016 were as follows:



September 30, 2017	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Non-Accrual Loans		Total Loans Receivable
	(Dollars in Thousands)
1-4 Family Real Estate	$	370	$	79	$	—	$	449	$	196,257	$	—	$	196,706
Commercial and Multi-Family Real Estate	—		—		—		—		584,825		685		585,510
Agricultural Real Estate	—		—		34,198		34,198		27,602		—		61,800
Consumer	2,512		558		1,406		4,476		158,528		—		163,004
Commercial Operating	—		—		—		—		35,759		—		35,759
Agricultural Operating	—		—		97		97		33,497		—		33,594
Premium Finance	1,509		2,442		1,205		5,156		245,303		—		250,459
Total	$	4,391	$	3,079	$	36,906	$	44,376	$	1,281,771	$	685	$	1,326,832



September 30, 2016	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Non-Accrual Loans		Total Loans Receivable
	(Dollars in Thousands)
1-4 Family Real Estate	$	—	$	30	$	—	$	30	$	162,185	$	83	$	162,298
Commercial and Multi-Family Real Estate	—		—		—		—		422,932		—		422,932
Agricultural Real Estate	—		—		—		—		63,612		—		63,612
Consumer	—		—		53		53		37,041		—		37,094
Commercial Operating	151		354		—		505		30,766		—		31,271
Agricultural Operating	—		—		—		—		37,083		—		37,083
Premium Finance	1,398		275		965		2,638		168,966		—		171,604
Total	$	1,549	$	659	$	1,018	$	3,226	$	922,585	$	83	$	925,894

When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments 90 days or more for retail bank loans. Specialty finance loans and Payment segment loans are generally not impaired but written off when the collection of principal and interest become doubtful. As of September 30, 2017, there were no specialty finance loans greater than 210 days past due and the Payment segment had no loans past due.

Impaired loans at September 30, 2017 and 2016 were as follows:



	Recorded Balance		Unpaid Principal Balance		Specific Allowance
September 30, 2017	(Dollars in Thousands)
Loans without a specific valuation allowance
1-4 Family Real Estate	$	72	$	72	$	—
Commercial and Multi-Family Real Estate	1,109		1,109		—
Total	$	1,181	$	1,181	$	—
Loans with a specific valuation allowance
Total	$	—	$	—	$	—



	Recorded Balance		Unpaid Principal Balance		Specific Allowance
September 30, 2016	(Dollars in Thousands)
Loans without a specific valuation allowance
1-4 Family Real Estate	$	84	$	84	$	—
Commercial and Multi-Family Real Estate	433		433		—
Total	$	517	$	517	$	—
Loans with a specific valuation allowance
1-4 Family Real Estate	$	78	$	78	$	10
Total	$	78	$	78	$	10

Cash interest collected on impaired loans was not material during the years ended September 30, 2017 and 2016.

The following table provides the average recorded investment in impaired loans for the years ended September 30, 2017 and 2016.



	Year Ended September 30,
	2017		2016
	Average Recorded Investment		Average Recorded Investment
1-4 Family Real Estate	$	176	$	144
Commercial and Multi-Family Real Estate	883		1,117
Agricultural Real Estate	146		—
Commercial Operating	202		6
Agricultural Operating	268		2,919
Total	$	1,675	$	4,186

For fiscal 2017 and 2016, the Company’s TDRs (which involved forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates) are included in the table above.

No TDRs were recorded during fiscal 2017 or 2016. Also, no TDRs which had been modified during the 12-month period prior to default had a payment default during fiscal 2017 or 2016.

In December 2016, MetaBank purchased, net of purchase discount, a $134.0 million seasoned, floating rate, private student loan portfolio. All loans are indexed to three-month LIBOR plus various margins. The portfolio is serviced by ReliaMax Lending Services, LLC and insured by ReliaMax Surety Company.

The majority of the Company’s retail bank originated loans are to Iowa- and South Dakota-based individuals and organizations. Excluding the purchased student loan balance of $123.7 million at September 30, 2017, the Company’s purchased loans portfolio totaled $10.7 million at September 30, 2017, which were secured by properties located in Iowa, North Dakota, and South Dakota.

The Company originates and purchases commercial real estate loans. These loans are considered by management to be of somewhat greater risk of not being collected due to the dependency on income production. The Company’s commercial real estate loans included $110.2 million of loans secured by hotel properties and $156.4 million of multi-family properties at September 30, 2017. The Company’s commercial real estate loans included $65.4 million of loans secured by hotel properties and $112.6 million of multi-family properties at September 30, 2016. The remainder of the commercial real estate portfolio is diversified by industry. The Company’s policy for requiring collateral and guarantees varies with the creditworthiness of each borrower.

Non-accruing loans were $0.7 million and $0.1 million at September 30, 2017 and 2016, respectively. There were $36.9 million and $1.0 million in accruing loans delinquent 90 days or more at September 30, 2017 and 2016, respectively. For the year ended September 30, 2017, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to approximately $13,000, none of which was included in interest income.