Loans Receivable and Allowance for Credit Losses

9 Months Ended

Dec. 31, 2023

Loans and Leases Receivable Disclosure [Abstract]

Loans Receivable and Allowance for Credit Losses

LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT 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 ACL reflects management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. Management uses a disciplined process and methodology to calculate the ACL each quarter. To determine the total ACL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

    The following is a summary of loans receivable at December 31, 2023 and March 31, 2023:

	December 31, 2023				March 31, 2023
$ in thousands	Amount		Percent		Amount		Percent
Loans receivable:
One-to-four family	$	84,041	13.4	%	$	65,808	11.0	%
Multifamily	177,772		28.5	%	179,117		30.0	%
Commercial real estate	174,202		27.9	%	178,424		29.8	%
Construction	1,559		0.2	%	—		—	%
Business (1)	172,204		27.6	%	166,908		27.9	%
Consumer (2)	14,873		2.4	%	7,639		1.3	%
Total loans receivable	$	624,651	100.0	%	$	597,896	100.0	%
Allowance for credit losses	(5,897)				(5,229)
Total loans receivable, net	$	618,754			$	592,667

(1) Includes PPP loans and business overdrafts

(2) Includes personal loans and consumer overdrafts

The totals above are shown net of deferred loan fees and costs. Net deferred loan fees totaled $3.0 million and $2.8 million at December 31, 2023 and March 31, 2023, respectively. The Bank purchased $20.0 million one-to-four family loans, $9.2 million consumer loans and $0.3 million business loans during the nine months ended December 31, 2023.

The Bank participated as a lender in the PPP, which opened on April 3, 2020. As part of the CARES Act, the SBA was authorized to temporarily guarantee loans under this new 7(a) loan program. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria. Since the PPP loans are fully guaranteed by the SBA, there are no additional ACL reserves required. As of December 31, 2023, the Bank had approved and funded approximately 420 applications totaling $57.1 million of loans under the PPP. Outstanding business loans under the PPP totaled $268 thousand as of December 31, 2023.

The following is an analysis of the allowance for credit losses based upon the method of evaluating loan reserves for the three and nine months ended December 31, 2023 under the expected loss methodology.

Three months ended December 31, 2023
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Construction		Business		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	2,264	$	721	$	1,212	$	—	$	1,393	$	417	$	—	$	6,007
Charge-offs	—		—		—		—		—		(17)		—		(17)
Recoveries	—		—		—		—		2		2		—		4
Provision for (recovery of) Credit Losses	(196)		1		(1)		1		57		41		—		(97)
Ending Balance	$	2,068	$	722	$	1,211	$	1	$	1,452	$	443	$	—	$	5,897

Nine months ended December 31, 2023
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Construction		Business		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	716	$	1,109	$	1,814	$	—	$	1,139	$	449	$	2	$	5,229
Impact of CECL adoption	1,220		(392)		(497)		—		505		(166)		(2)		668
Charge-offs	—		—		—		—		—		(134)		—		(134)
Recoveries	—		—		—		—		52		5		—		57
Provision for (recovery of) Credit Losses	132		5		(106)		1		(244)		289		—		77
Ending Balance	$	2,068	$	722	$	1,211	$	1	$	1,452	$	443	$	—	$	5,897
Allowance for Credit Losses Ending Balance: collectively evaluated for impairment	$	2,068	$	722	$	1,211	$	1	$	1,442	$	443	$	—	$	5,887
Allowance for Credit Losses Ending Balance: individually evaluated for impairment	—		—		—		—		10		—		—		10
Loan Receivables Ending Balance:	$	84,041	$	177,772	$	174,202	$	1,559	$	172,204	$	14,873	$	—	$	624,651
Ending Balance: collectively evaluated for impairment	80,772		175,179		168,265		1,559		159,349		14,853		—		599,977
Ending Balance: individually evaluated for impairment	3,269		2,593		5,937		—		12,855		20		—		24,674

The following is an analysis of the allowance for loan losses as of the fiscal year ended March 31, 2023 and for the three and nine months ended December 31, 2022 based upon the incurred loss impairment model.

At March 31, 2023
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for Loan Losses Ending Balance:	$	716	$	1,109	$	1,814	$	1,139	$	449	$	2	$	5,229
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	607		1,109		1,814		937		449		2		4,918
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	109		—		—		202		—		—		311
Loan Receivables Ending Balance:	$	65,808	$	179,117	$	178,424	$	166,908	$	7,639	$	—	$	597,896
Ending Balance: collectively evaluated for impairment	60,805		179,046		171,234		160,985		7,638		—		579,708
Ending Balance: individually evaluated for impairment	5,003		71		7,190		5,923		1		—		18,188

Three months ended December 31, 2022
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	704	$	1,055	$	1,608	$	1,814	$	82	$	246	$	5,509
Charge-offs	—		—		(586)		—		(106)		—		(692)
Recoveries	—		—		—		30		2		—		32
Provision for (recovery of) Loan Losses	20		25		23		69		143		25		305
Ending Balance	$	724	$	1,080	$	1,045	$	1,913	$	121	$	271	$	5,154

Nine months ended December 31, 2022
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	731	$	1,114	$	1,157	$	2,497	$	123	$	2	$	5,624
Charge-offs	—		—		(586)		—		(130)		—		(716)
Recoveries	90		—		10		53		4		—		157
Provision for (recovery of) Loan Losses	(97)		(34)		464		(637)		124		269		89
Ending Balance	$	724	$	1,080	$	1,045	$	1,913	$	121	$	271	$	5,154

The following is a summary of nonaccrual loans, at amortized cost, at December 31, 2023 and March 31, 2023.

	December 31, 2023						March 31, 2023
$ in thousands	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans
Gross loans receivable:
One-to-four family	$	4,295	$	—	$	4,295	$	4,001
Multifamily	2,627		—		$	2,627	71
Commercial real estate	5,937		—		$	5,937	7,190
Business	13,999		10		$	14,009	998
Consumer	27		18		$	45	1
Total nonaccrual loans	$	26,885	$	28	$	26,913	$	12,261

    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.  Accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of collection. When a loan is placed on nonaccrual status, any accrued but uncollected interest is reversed from current income. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. There was no interest income recognized on nonaccrual loans during the three and nine months ended December 31, 2023.

    At December 31, 2023 and March 31, 2023, other non-performing assets totaled $60 thousand, which consisted of other real estate owned comprised of one foreclosed residential property. Other real estate owned is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at December 31, 2023 and March 31, 2023.

    Although we believe that substantially all risk elements at December 31, 2023 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:

Pass - Loans have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. These loans represent a moderate credit risk and some degree of financial stability, and are considered collectible in full.

Special Mention - Loans have potential weaknesses that deserve management's close attention. If 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.

Substandard - Loans are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans 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.

Doubtful - Loans have all the weaknesses inherent in those classified as Substandard, with the added characteristic that collection or liquidation in full, based on current facts, conditions and values, is highly questionable and improbable.

Loss - Loans are considered uncollectible with insignificant value and are charged off immediately to the allowance for credit losses.

One-to-four family residential loans and consumer loans are rated non-performing if they are delinquent in payments ninety or more days, or past maturity. All other one-to-four family residential loans and consumer loans are performing loans.

The following table presents the amortized cost of loans by year of origination and risk category by class of loans based on the most recent analysis performed in the current quarter as of December 31, 2023:

$ in thousands	2023		2022		2021		2020		2019		2018 and earlier		Revolving Loans		Total
Credit Risk Profile by Internally Assigned Grade:
Multifamily
Pass	$	6,608	$	53,694	$	51,037	$	28,668	$	17,619	$	17,553	$	—	$	175,179
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		1,474		754		—		365		—		2,593
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	6,608		53,694		52,511		29,422		17,619		17,918		—		177,772
Commercial Real Estate
Pass	29,104		31,426		27,757		17,068		20,834		42,810		—		168,999
Special Mention	—		—		—		—		—		681		—		681
Substandard	—		—		—		—		—		4,522		—		4,522
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	29,104		31,426		27,757		17,068		20,834		48,013		—		174,202
Construction
Pass	1,559		—		—		—		—		—		—		1,559
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	1,559		—		—		—		—		—		—		1,559
Business
Pass	12,715		33,568		53,185		10,897		372		49,540		—		160,277
Special Mention	—		—		—		—		235		5		—		240
Substandard	—		7,056		3,987		—		—		644		—		11,687
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	12,715		40,624		57,172		10,897		607		50,189		—		172,204
Credit Risk Profile Based on Payment Activity:
One-to-four Family
Performing	22,349		3,844		13,470		1,432		8,651		31,026		—		80,772
Non-Performing	—		—		—		—		—		3,269		—		3,269
Total	22,349		3,844		13,470		1,432		8,651		34,295		—		84,041
Consumer
Performing	12,914		607		3		20		—		1,285		—		14,829
Non-Performing	18		24		2		—		—		—		—		44
Total	12,932		631		5		20		—		1,285		—		14,873
Gross charge-offs	—		—		—		—		—		134		—		134
Total Loans	$	85,267	$	130,219	$	150,915	$	58,839	$	47,711	$	151,700	$	—	$	624,651

    At March 31, 2023, the risk category by class of loans was as follows:

$ in thousands	Multifamily		Commercial Real Estate		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	175,981	$	170,534	$	154,056
Special Mention	771		701		5,719
Substandard	2,365		7,189		7,133
Total	$	179,117	$	178,424	$	166,908
			One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing			$	60,629	$	7,639
Non-Performing			5,179		—
Total			$	65,808	$	7,639

    Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. The following table presents an aging analysis of the amortized cost of past due loans receivables at December 31, 2023 and March 31, 2023.

.

December 31, 2023
$ 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	$	346	$	—	$	2,991	$	3,337	$	80,704	$	84,041
Multifamily	8,758		—		2,543		11,301		166,471		177,772
Commercial real estate	3,533		2,945		5,937		12,415		161,787		174,202
Construction	—		—		—		—		1,559		1,559
Business	3,535		2,137		13,535		19,207		152,997		172,204
Consumer	142		118		18		278		14,595		14,873
Total	$	16,314	$	5,200	$	25,024	$	46,538	$	578,113	$	624,651

March 31, 2023
$ 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	$	1,207	$	185	$	2,475	$	3,867	$	61,941	$	65,808
Multifamily	1,458		—		71		1,529		177,588		179,117
Commercial real estate	1,370		—		—		1,370		177,054		178,424
Business	11,006		—		5,014		16,020		150,888		166,908
Consumer	99		26		34		159		7,480		7,639
Total	$	15,140	$	211	$	7,594	$	22,945	$	574,951	$	597,896

At December 31, 2023 and March 31, 2023, there were no loans 90 or more days past due and accruing interest.

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the underlying collateral and the borrower is experiencing financial difficulty. All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual analysis. The following table presents the amortized cost of collateral dependent loans with the associated allowance amount, if applicable, as of December 31, 2023:

	Collateral Type
$ in thousands	Real Estate		Other		Allowance Allocated
One-to-four family	$	3,269	$	—	$	—
Multifamily	2,593		—		—
Commercial real estate	5,937		—		—
Business	12,464		391		10
Consumer	—		20		1
	$	24,263	$	411	$	11

Real estate collateral includes one-to-four family, multifamily and commercial properties. Collateral types securing business loans include accounts receivable. There have been no significant changes to the types of collateral securing the Bank's collateral dependent loans.

The following table presents information on impaired loans with the associated allowance amount and interest income recognized on a cash basis, if applicable, at March 31, 2023.

	At March 31, 2023
$ in thousands	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Balance		Interest Income Recognized
With no specific allowance recorded:
One-to-four family	$	3,972	$	4,567	$	—	$	3,861	$	111
Multifamily	71		71		—		220		—
Commercial real estate	7,190		7,378		—		4,054		36
Business	1,114		1,146		—		1,723		—
Consumer	1		1		—		—		—
With an allowance recorded:
One-to-four family	1,031		1,031		109		554		41
Business	4,809		4,820		202		5,116		316
Total	$	18,188	$	19,014	$	311	$	15,528	$	504

In certain circumstances, the Bank will modify the terms of a loan by granting a concession. 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 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 to borrowers experiencing financial difficulty made during the nine months ended December 31, 2023. There were two one-to-four family loans totaling $1.0 million modified during the nine months ended December 31, 2022. At December 31, 2023, loans modified to borrowers experiencing financial difficulty totaled $6.8 million, $1.1 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. There were four modified loans totaling $5.8 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.

    In an effort to proactively resolve delinquent loans, the Bank had selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements during the nine months ended December 31, 2022. For the periods ended December 31, 2023 and 2022, there were no modified loans that defaulted within 12 months of modification.

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.

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. There were no loans outstanding to related parties at December 31, 2023.