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Loans Receivable and Allowance for Loan and Lease Losses

9 Months Ended

Dec. 31, 2019

Loans and Leases Receivable Disclosure [Abstract]

Loans Receivable and Allowance for Loan and Lease Losses

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The loans receivable portfolio is segmented into one-to-four family, multifamily, commercial real estate, business (including Small Business Administration loans), and consumer loans.

The allowance for loan and lease losses ("ALLL") reflects management’s judgment in the evaluation of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to calculate the ALLL each quarter. To determine the total ALLL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

From time to time, events or economic factors may affect the loan portfolio, causing management to provide additional or to release reserves from the ALLL. The ALLL is sensitive to risk ratings assigned to individually evaluated loans and economic assumptions and delinquency trends. Individual loan risk ratings are evaluated based on the specific facts related to that loan. Additions to the ALLL are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the ALLL, while recoveries of previously charged off amounts are credited to the ALLL.

The following is a summary of loans receivable at December 31, 2019 and March 31, 2019:


	December 31, 2019						March 31, 2019
$ in thousands	Amount		Percent		Amount		Percent
Gross loans receivable:
One-to-four family	$	111,218	26.6	%	$	108,363	25.5	%
Multifamily	83,503		19.9	%	86,177		20.2	%
Commercial real estate	134,884		32.2	%	130,812		30.7	%

Business ⁽¹⁾	85,646		20.5	%	96,430		22.7	%
Consumer ⁽²⁾	3,552		0.8	%	4,023		0.9	%
Total loans receivable	$	418,803	100.0	%	$	425,805	100.0	%

Unamortized premiums, deferred costs and fees, net	3,516				3,023

Allowance for loan losses	(4,607)				(4,646)
Total loans receivable, net	$	417,712			$	424,182

⁽¹⁾ Includes business overdrafts

⁽²⁾Includes personal loans and consumer overdrafts

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three and nine month periods ended December 31, 2019 and 2018, and the fiscal year ended March 31, 2019.


Three months ended December 31, 2019
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	1,289		884		695		1,491		248		18		$	4,625
Charge-offs	(12)		—		—		(13)		(8)		—		(33)
Recoveries	—		—		—		7		—		—		7
Provision for (recovery of) Loan Losses	(96)		36		(4)		(1)		(9)		82		8
Ending Balance	$	1,181	$	920	$	691	$	1,484	$	231	$	100	$	4,607


Nine months ended December 31, 2019
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,274	$	885	$	766	$	1,330	$	154	$	237	$	4,646
Charge-offs	(12)		—		—		(69)		(81)		—		(162)
Recoveries	8		—		—		97		2		—		107
Provision for (recovery of) Loan Losses	(89)		35		(75)		126		156		(137)		16
Ending Balance	$	1,181	$	920	$	691	$	1,484	$	231	$	100	$	4,607

Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	$	1,023	$	920	$	691	$	1,474	$	231	$	100	$	4,439
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	158		—		—		10		—		—		168

Loan Receivables Ending Balance:	$	113,352	$	84,072	$	135,424	$	85,883	$	3,588	$	—	$	422,319
Ending Balance: collectively evaluated for impairment	108,250		83,694		135,424		82,438		3,588		—		413,394
Ending Balance: individually evaluated for impairment	5,102		378		—		3,445		—		—		8,925


At March 31, 2019
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total







Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	$	1,103	$	885	$	766	$	1,312	$	154	$	237	$	4,457
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	171		—		—		18		—		—		189

Loan Receivables Ending Balance:	$	109,926	$	86,886	$	131,292	$	96,661	$	4,063	$	—	$	428,828
Ending Balance: collectively evaluated for impairment	104,509		83,672		130,816		93,399		4,063		—		416,459
Ending Balance: individually evaluated for impairment	5,417		3,214		476		3,262		—		—		12,369


Three months ended December 31, 2018
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,481	$	939	$	702	$	1,530	$	140	$	—	$	4,792
Charge-offs	(6)		—		—		(490)		(7)		—		(503)
Recoveries	186		—		—		658		1		—		845
Provision for (recovery of) Loan Losses	(198)		(65)		36		(320)		(12)		227		(332)
Ending Balance	$	1,463	$	874	$	738	$	1,378	$	122	$	227	$	4,802


Nine months ended December 31, 2018
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,210	$	1,819	$	1,052	$	1,003	$	18	$	24	$	5,126
Charge-offs	(151)		(100)		—		(830)		(12)		—		(1,093)
Recoveries	186		158		—		667		36		—		1,047
Provision for (recovery of) Loan Losses	218		(1,003)		(314)		538		80		203		(278)
Ending Balance	$	1,463	$	874	$	738	$	1,378	$	122	$	227	$	4,802

The following is a summary of nonaccrual loans at December 31, 2019 and March 31, 2019.


$ in thousands	December 31, 2019		March 31, 2019
Gross loans receivable:
One-to-four family	$	4,053	$	4,488
Multifamily	378		3,214
Commercial real estate	—		476

Business	2,754		2,051
Consumer	8		65
Total nonaccrual loans	$	7,193	$	10,294

Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan.

At December 31, 2019, other non-performing assets totaled $120 thousand which consisted of other real estate owned comprised of two foreclosed residential properties, compared to $404 thousand comprised of four residential properties at March 31, 2019.

Although we believe that substantially all risk elements at December 31, 2019 have been disclosed, it is possible that for a variety of reasons, including economic conditions, certain borrowers may be unable to comply with the contractual repayment terms on certain real estate and commercial loans.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories. Loans may be classified as “Pass,” “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.

One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

At December 31, 2019, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows:


$ in thousands	Multifamily		Commercial Real Estate		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	83,694	$	134,803	$	78,458
Special Mention	—		621		3,951
Substandard	378		—		3,474


Total	$	84,072	$	135,424	$	85,883

			One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing			$	109,299	$	3,580
Non-Performing			4,053		8
Total			$	113,352	$	3,588

At March 31, 2019, and based on the most recent analysis performed, the risk category by class of loans is as follows:


$ in thousands	Multifamily		Commercial Real Estate		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	83,672	$	128,319	$	90,336
Special Mention	—		2,497		2,425
Substandard	3,214		476		3,900


Total	$	86,886	$	131,292	$	96,661

			One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing			$	106,531	$	4,063
Non-Performing			3,395		—
Total			$	109,926	$	4,063

The following table presents an aging analysis of the recorded investment of past due loans receivables at December 31, 2019 and March 31, 2019.


December 31, 2019
$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans Receivables
One-to-four family	$	1,196	$	—	$	3,668	$	4,864	$	108,488	$	113,352
Multifamily	—		505		—		505		83,567		84,072
Commercial real estate	4,651		1,333		—		5,984		129,440		135,424

Business	2,777		4		1,830		4,611		81,272		85,883
Consumer	2		6		—		8		3,580		3,588
Total	$	8,626	$	1,848	$	5,498	$	15,972	$	406,347	$	422,319


March 31, 2019
$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans Receivables
One-to-four family	$	1,827	$	—	$	3,395	$	5,222	$	104,704	$	109,926
Multifamily	2,580		—		2,118		4,698		82,188		86,886
Commercial real estate	121		—		—		121		131,171		131,292

Business	780		—		599		1,379		95,282		96,661
Consumer	87		53		65		205		3,858		4,063
Total	$	5,395	$	53	$	6,177	$	11,625	$	417,203	$	428,828

The following table presents information on impaired loans with the associated allowance amount, if applicable, at December 31, 2019 and March 31, 2019.


	At December 31, 2019										At March 31, 2019
$ in thousands	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Recorded Investment		Unpaid Principal Balance		Associated Allowance
With no specific allowance recorded:
One-to-four family	$	4,291	$	5,296	$	—	$	4,488	$	5,643	$	—
Multifamily	378		378		—		3,214		3,214		—
Commercial real estate	—		—		—		476		476		—

Business	2,774		2,847		—		1,974		2,017		—

With an allowance recorded:
One-to-four family	811		806		158		929		929		171



Business	671		671		10		1,288		1,288		18

Total	$	8,925	$	9,998	$	168	$	12,369	$	13,567	$	189

The following tables presents information on average balances of impaired loans and the interest income recognized on a cash basis for the three and nine month periods ended December 31, 2019 and 2018.


	For the Three Months Ended December 31,														For the Nine Months Ended December 31,
	2019						2018						2019				2018
$ in thousands	Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no specific allowance recorded:
One-to-four family	$	4,143	$	14	$	4,608	$	25	$	4,390	$	43	$	4,973	$	60
Multifamily	1,406		14		2,518		11		1,796		45		1,836		29
Commercial real estate	—		—		486		8		238		—		1,011		16

Business	2,096		16		1,204		—		2,374		41		1,192		6

With an allowance recorded:
One-to-four family	813		—		938		—		870		—		1,000		—
Multifamily	—		—		—		—		—		—		371		—

Business	780		—		2,428		—		979		—		2,239		4

Total	$	9,238	$	44	$	12,182	$	44	$	10,647	$	129	$	12,622	$	115

Troubled debt restructured ("TDR") loans consist of modified loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties, which rendered them unable to repay their loans under the original contractual terms. Total TDR loans at December 31, 2019 were $4.3 million, $2.6 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. At March 31, 2019, total TDR loans were $5.4 million, of which $3.2 million were non-performing.

In certain circumstances, the Bank will modify a loan as part of a TDR under GAAP. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified in TDRs are placed on nonaccrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. There were no loan modifications made during the three and nine month periods ended December 31, 2019. There

were two loan modification made during the three month period and three modifications made during the nine month period ended December 31, 2018. The following table presents an analysis of the loan modifications that were classified as TDRs during the three and nine month periods ended December 31, 2018.


	Modifications to loans during the three month period ended																Modifications to loans during the nine month period ended
	December 31, 2018																December 31, 2018
$ in thousands	Number of loans	Pre-modification outstanding recorded investment		Post-Modification Recorded investment		Pre-Modification rate		Post-Modification rate		Number of loans	Pre-modification outstanding recorded investment		Post-Modification Recorded investment		Pre-Modification rate		Post-Modification rate


Business	2	$	1,014	$	648	6.11	%	6.24	%	3	$	2,776	$	2,360	6.51	%	6.06	%

In an effort to proactively resolve delinquent loans, the Bank has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the periods ended December 31, 2019 and 2018, there were no modified loans that defaulted within 12 months of modification.

At December 31, 2019, there were 6 loans in the TDR portfolio totaling $1.8 million that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to restructured terms for a period of at least six months. At March 31, 2019, there were 8 loans in the TDR portfolio totaling $2.2 million that were on accrual status.

Transactions With Certain Related Persons

Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features.

The aggregate amount of loans outstanding to related parties was $70 thousand at December 31, 2019 and $80 thousand at March 31, 2019. During the nine months ended December 31, 2019, principal repayments totaled $10 thousand.

Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a majority of the disinterested members of Carver Federal’s Board of Directors.