(1)

Includes $159.3 million and $180.6 million of loans originated under the SBA’s Paycheck Protection Program ("PPP") at March 31, 2021 and September 30, 2020, respectively.

(2)

Includes $2.1 million and $3.2 million of net deferred loan fees related to PPP loans as of March 31, 2021 and September 30, 2020, respectively.

During the six-month period ended March 31, 2021, there were no significant changes in the Company’s lending activities or the methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.

At March 31, 2021 and September 30, 2020, the Bank did not own any residential real estate properties where physical possession has been obtained. At March 31, 2021 and September 30, 2020, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $796,000 and $1.3 million, respectively.

The following table provides the components of the recorded investment in loans as of March 31, 2021:


	Principal		Accrued		Net Deferred		Recorded
	Loan		Interest		Loan Origination		Investment
	Balance		Receivable		Fees and Costs		in Loans

	(In thousands)
Residential real estate	$	205,129	$	638	$	(295)	$	205,472
Commercial real estate		141,122		601		(189)		141,534
Single tenant net lease		372,074		1,242		(173)		373,143
SBA commercial real estate		57,556		528		1,026		59,110
Multifamily		44,434		122		(48)		44,508
Residential construction		5,389		7		(27)		5,369
Commercial construction		9,193		30		(28)		9,195
Land and land development		10,894		26		(10)		10,910
Commercial business		63,392		185		46		63,623
SBA commercial business		182,167		1,495		(1,664)		181,998
Consumer		55,800		160		(21)		55,939
	$	1,147,150	$	5,034	$	(1,383)	$	1,150,801


	Individually		Collectively		Recorded
	Evaluated for		Evaluated for		Investment in
	Impairment		Impairment		Loans

	(In thousands)
Recorded Investment in Loans as Evaluated for Impairment:
Residential real estate	$	3,663	$	201,809	$	205,472
Commercial real estate		1,088		140,446		141,534
Single tenant net lease		—		373,143		373,143
SBA commercial real estate		5,386		53,724		59,110
Multifamily		648		43,860		44,508
Residential construction		—		5,369		5,369
Commercial construction		—		9,195		9,195
Land and land development		4		10,906		10,910
Commercial business		1,706		61,917		63,623
SBA commercial business		768		181,230		181,998
Consumer		162		55,777		55,939
	$	13,425	$	1,137,376	$	1,150,801

The following table provides the components of the recorded investment in loans as of September 30, 2020:


	Principal		Accrued		Net Deferred		Recorded
	Loan		Interest		Loan Origination		Investment
	Balance		Receivable		Fees and Costs		in Loans

	(In thousands)
Residential real estate	$	191,781	$	644	$	(156)	$	192,269
Commercial real estate		141,522		812		(197)		142,137
Single tenant net lease		334,636		1,198		(234)		335,600
SBA commercial real estate		55,508		387		1,082		56,977
Multifamily		42,368		139		(37)		42,470
Residential construction		9,361		25		(28)		9,358
Commercial construction		6,941		24		(26)		6,939
Land and land development		9,403		20		(11)		9,412
Commercial business		60,513		186		43		60,742
SBA commercial business		206,807		975		(2,740)		205,042
Consumer		50,576		175		(23)		50,728
	$	1,109,416	$	4,585	$	(2,327)	$	1,111,674


	Individually		Collectively		Recorded
	Evaluated for		Evaluated for		Investment in
	Impairment		Impairment		Loans

	(In thousands)
Recorded Investment in Loans as Evaluated for Impairment:
Residential real estate	$	5,359	$	186,910	$	192,269
Commercial real estate		1,134		141,003		142,137
Single tenant net lease		—		335,600		335,600
SBA commercial real estate		6,927		50,050		56,977
Multifamily		698		41,772		42,470
Residential construction		—		9,358		9,358
Commercial construction		—		6,939		6,939
Land and land development		2		9,410		9,412
Commercial business		1,670		59,072		60,742
SBA commercial business		695		204,347		205,042
Consumer		199		50,529		50,728
	$	16,684	$	1,094,990	$	1,111,674

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2021 and September 30, 2020:


	Individually		Collectively
	Evaluated for		Evaluated for		Ending
	Impairment		Impairment		Balance

	(In thousands)
March 31, 2021:
Residential real estate	$	27	$	1,595	$	1,622
Commercial real estate		—		3,060		3,060
Single tenant net lease		—		3,349		3,349
SBA commercial real estate		501		3,301		3,802
Multifamily		—		810		810
Residential construction		—		136		136
Commercial construction		—		239		239
Land and land development		—		283		283
Commercial business		5		1,531		1,536
SBA commercial business		41		1,508		1,549
Consumer		—		1,033		1,033

	$	574	$	16,845	$	17,419

September 30, 2020:
Residential real estate	$	30	$	1,225	$	1,255
Commercial real estate		—		3,058		3,058
Single tenant net lease		—		3,017		3,017
SBA commercial real estate		1,366		2,788		4,154
Multifamily		—		772		772
Residential construction		—		243		243
Commercial construction		—		181		181
Land and land development		—		243		243
Commercial business		—		1,449		1,449
SBA commercial business		47		1,492		1,539
Consumer		—		1,115		1,115

	$	1,443	$	15,583	$	17,026

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021 and 2020:


	Beginning								Ending
	Balance		Provisions		Charge-Offs		Recoveries		Balance

	(In thousands)
March 31, 2021:
Residential real estate	$	1,176	$	442	$	—	$	4	$	1,622
Commercial real estate		3,007		53		—		—		3,060
Single tenant net lease		3,233		116		—		—		3,349
SBA commercial real estate		3,624		178		—		—		3,802
Multifamily		713		97		—		—		810
Residential construction		149		(13)		—		—		136
Commercial construction		212		27		—		—		239
Land and land development		300		(17)		—		—		283
Commercial business		1,487		45		—		4		1,536
SBA commercial business		1,536		3		—		10		1,549
Consumer		1,687		(644)		(22)		12		1,033
	$	17,124	$	287	$	(22)	$	30	$	17,419

March 31, 2020:
Residential real estate	$	318	$	54	$	(4)	$	11	$	379
Commercial real estate		2,595		(2)		(100)		—		2,493
Single tenant net lease		1,947		(581)		—		—		1,366
SBA commercial real estate		2,282		937		(7)		—		3,212
Multifamily		481		18		—		—		499
Residential construction		228		(42)		—		—		186
Commercial construction		57		8		—		—		65
Land and land development		202		1		—		—		203
Commercial business		967		674		—		1		1,642
SBA commercial business		786		555		(396)		—		945
Consumer		667		83		(62)		13		701
	$	10,530	$	1,705	$	(569)	$	25	$	11,691

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended March 31, 2021 and 2020:


	Beginning								Ending
	Balance		Provisions		Charge-Offs		Recoveries		Balance

	(In thousands)
March 31, 2021:
Residential real estate	$	1,255	$	363	$	(5)	$	9	$	1,622
Commercial real estate		3,058		2		—		—		3,060
Single tenant net lease		3,017		332		—		—		3,349
SBA commercial real estate		4,154		163		(522)		7		3,802
Multifamily		772		38		—		—		810
Residential construction		243		(107)		—		—		136
Commercial construction		181		58		—		—		239
Land and land development		243		40		—		—		283
Commercial business		1,449		82		—		5		1,536
SBA commercial business		1,539		(10)		—		20		1,549
Consumer		1,115		(6)		(97)		21		1,033

	$	17,026	$	955	$	(624)	$	62	$	17,419

March 31, 2020:
Residential real estate	$	317	$	78	$	(36)	$	20	$	379
Commercial real estate		2,540		53		(100)		—		2,493
Single tenant net lease		1,675		(309)		—		—		1,366
SBA commercial real estate		2,293		888		(15)		46		3,212
Multifamily		478		21		—		—		499
Residential construction		248		(62)		—		—		186
Commercial construction		67		(2)		—		—		65
Land and land development		209		(6)		—		—		203
Commercial business		889		747		—		6		1,642
SBA commercial business		750		591		(396)		—		945
Consumer		574		211		(126)		42		701

	$	10,040	$	2,210	$	(673)	$	114	$	11,691

The following table presents impaired loans individually evaluated for impairment as of March 31, 2021 and for the three and six-months ended March 31, 2021 and 2020. The Company did not recognize any interest income on impaired loans using the cash receipts method during the three and six-month periods ended March 31, 2021 and 2020.


							Three Months Ended								Six Months Ended
	At March 31, 2021						March 31,								March 31,
							2021		2021		2020		2020		2021		2021		2020		2020
			Unpaid				Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized

	(In thousands)

Loans with no related allowance recorded:
Residential real estate	$	3,491	$	4,115	$	—	$	4,503	$	11	$	5,338	$	34	$	4,899	$	38	$	5,215	$	61
Commercial real estate		1,088		1,154		—		1,161		9		4,659		35		1,169		15		4,861		80
Single tenant net lease		0		0		—		0		—		—		—		0		0		—		—
SBA commercial real estate		593		768		—		2,755		—		740		12		2,229		0		541		29
Multifamily		648		693		—		693		—		352		—		696		0		234		—
Residential construction		—		—		—		0		—		—		—		0		0		—		0
Commercial construction		—		—		—		0		—		—		—		0		0		—		—
Land and land development		4		1		—		1		—		1		—		1		0		—		—
Commercial business		1,701		1,758		—		1,712		1		139		—		1,700		1		128		1
SBA commercial business		322		416		—		416		—		208		—		416		0		139		—
Consumer		55		56		—		97		—		75		—		86		1		77		2
	$	7,902	$	8,961	$	—	$	11,358	$	21	$	11,512	$	81	$	11,196	$	55	$	11,195	$	173

Loans with an allowance recorded:
Residential real estate	$	172	$	175	$	27	$	88	$	—	$	55	$	—	$	117	$	—	$	39	$	—
Commercial real estate		—		—		—		0		—		50		—		—		—		33		—
Single tenant net lease		—		—		—		0		—		—		—		—		—		—		—
SBA commercial real estate		4,793		5,415		501		3,548		—		4,561		—		4,394		—		3,920		—
Multifamily		—		—		—		0		—		—		—		—		—		—		—
Residential construction		—		—		—		0		—		—		—		—		—		—		—
Commercial construction		—		—		—		0		—		—		—		—		—		—		—
Land and land development		—		—		—		0		—		—		—		—		—		—		—
Commercial business		5		5		5		2		—		783		—		2		—		522		—
SBA commercial business		446		553		41		410		—		157		—		406		—		105		—
Consumer		107		107		—		220		—		183		—		193		—		174		—
	$	5,523	$	6,255	$	574	$	4,268	$	—	$	5,789	$	—	$	5,112	$	—	$	4,793	$	—

Total:
Residential real estate	$	3,663	$	4,290	$	27	$	4,591	$	11	$	5,393	$	34	$	5,016	$	38	$	5,254	$	61
Commercial real estate		1,088		1,154		—		1,161		9		4,709		35		1,169		15		4,894		80
Single tenant net lease		—		—		—		—		—		—		—		—		—		—		—
SBA commercial real estate		5,386		6,183		501		6,303		—		5,301		12		6,623		—		4,461		29
Multifamily		648		693		—		693		—		352		—		696		—		234		—
Residential construction		—		—		—		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—		—		—		—
Land and land development		4		1		—		1		—		1		—		1		—		—		—
Commercial business		1,706		1,763		5		1,714		1		922		—		1,702		1		650		1
SBA commercial business		768		969		41		826		—		365		—		822		—		244		—
Consumer		162		163		0		317		—		258		—		279		1		251		2
	$	13,425	$	15,216	$	574	$	15,606	$	21	$	17,301	$	81	$	16,308	$	55	$	15,988	$	173

The following table presents impaired loans individually evaluated for impairment as of September 30, 2020.


			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance

	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	5,185	$	5,697	$	—
Commercial real estate		1,134		1,185		—
Single tenant net lease		—		—		—
SBA commercial real estate		1,245		1,178		—
Multifamily		698		700		—
Residential construction		—		—		—
Commercial construction		—		—		—
Land and land development		2		1		—
Commercial business		1,670		1,675		—
SBA commercial business		322		416		—
Consumer		61		63		—
	$	10,317	$	10,915	$	—

Loans with an allowance recorded:
Residential real estate	$	174	$	175	$	30
Commercial real estate		—		—		—
Single tenant net lease		—		—		—
SBA commercial real estate		5,682		6,086		1,366
Multifamily		—		—		—
Residential construction		—		—		—
Commercial construction		—		—		—
Land and land development		—		—		—
Commercial business		—		—		—
SBA commercial business		373		399		47
Consumer		138		138		—
	$	6,367	$	6,798	$	1,443

Total:
Residential real estate	$	5,359	$	5,872	$	30
Commercial real estate		1,134		1,185		—
Single tenant net lease		—		—		—
SBA commercial real estate		6,927		7,264		1,366
Multifamily		698		700		—
Residential construction		—		—		—
Commercial construction		—		—		—
Land and land development		2		1		—
Commercial business		1,670		1,675		—
SBA commercial business		695		815		47
Consumer		199		201		—
	$	16,684	$	17,713	$	1,443

Nonperforming loans consist of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at March 31, 2021 and September 30, 2020:


	At March 31, 2021						At September 30, 2020
			Loans 90+						Loans 90+
			Days		Total				Days		Total
	Nonaccrual		Past Due		Nonperforming		Nonaccrual		Past Due		Nonperforming
	Loans		Still Accruing		Loans		Loans		Still Accruing		Loans

	(In thousands)

Residential real estate	$	2,256	$	—	$	2,256	$	2,797	$	—	$	2,797
Commercial real estate		650		—		650		685		—		685
Single tenant net lease		—		—		—		—		—		—
SBA commercial real estate		5,386		—		5,386		6,927		—		6,927
Multifamily		648		—		648		698		—		698
Residential construction		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—
Land and land development		4		—		4		2		—		2
Commercial business		1,582		—		1,582		1,668		—		1,668
SBA commercial business		768		—		768		695		—		695
Consumer		112		—		112		143		—		143

Total	$	11,406	$	—	$	11,406	$	13,615	$	—	$	13,615

The following table presents the aging of the recorded investment in past due loans at March 31, 2021:




	30-59 Days		60-89 Days		90+ Days		Total				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans

	(In thousands)

Residential real estate	$	1,716	$	—	$	686	$	2,402	$	203,070	$	205,472
Commercial real estate		88		—		650		738		140,796		141,534
Single tenant net lease		—		—		—		—		373,143		373,143
SBA commercial real estate		—		469		4,419		4,888		54,222		59,110
Multifamily		—		—		—		—		44,508		44,508
Residential construction		—		—		—		—		5,369		5,369
Commercial construction		—		—		—		—		9,195		9,195
Land and land development		—		—		4		4		10,906		10,910
Commercial business		120		—		37		157		63,466		63,623
SBA commercial business		—		—		768		768		181,230		181,998
Consumer		64		243		5		312		55,627		55,939

Total	$	1,988	$	712	$	6,569	$	9,269	$	1,141,532	$	1,150,801

The following table presents the aging of the recorded investment in past due loans at September 30, 2020:


	30-59		60-89		90+
	Days		Days		Days		Total				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans

	(In thousands)
Residential real estate	$	1,693	$	480	$	1,631	$	3,804	$	188,465	$	192,269
Commercial real estate		109		—		685		794		141,343		142,137
Single tenant net lease		—		—		—		—		335,600		335,600
SBA commercial real estate		—		—		1,874		1,874		55,103		56,977
Multifamily		—		—		—		—		42,470		42,470
Residential construction		—		—		—		—		9,358		9,358
Commercial construction		—		—		—		—		6,939		6,939
Land and land development		—		—		2		2		9,410		9,412
Commercial business		63		—		—		63		60,679		60,742
SBA commercial business		373		—		322		695		204,347		205,042
Consumer		233		59		4		296		50,432		50,728

Total	$	2,471	$	539	$	4,518	$	7,528	$	1,104,146	$	1,111,674

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic conditions and trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company 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 make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset is not warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table presents the recorded investment in loans by risk category as of March 31, 2021:


			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total

	(In thousands)
March 31, 2021:
Residential real estate	$	202,664	$	—	$	2,628	$	180	$	—	$	205,472
Commercial real estate		133,444		4,108		3,982		—		—		141,534
Single tenant net lease		373,143		—		—		—		—		373,143
SBA commercial real estate		41,698		5,418		8,699		3,295		—		59,110
Multifamily		43,860		—		648		—		—		44,508
Residential construction		5,369		—		—		—		—		5,369
Commercial construction		9,195		—		—		—		—		9,195
Land and land development		10,906		—		4		—		—		10,910
Commercial business		61,728		149		1,746		—		—		63,623
SBA commercial business		178,540		250		3,174		34		—		181,998
Consumer		55,934		—		5		—		—		55,939
Total	$	1,116,481	$	9,925	$	20,886	$	3,509	$	—	$	1,150,801

The following table presents the recorded investment in loans by risk category as of September 30, 2020:


			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total

	(In thousands)
September 30, 2020:
Residential real estate	$	188,707	$	—	$	3,435	$	127	$	—	$	192,269
Commercial real estate		133,685		4,112		4,340		—		—		142,137
Single tenant net lease		335,600		—		—		—		—		335,600
SBA commercial real estate		38,124		6,518		12,335		—		—		56,977
Multifamily		41,772		—		698		—		—		42,470
Residential construction		9,358		—		—		—		—		9,358
Commercial construction		6,939		—		—		—		—		6,939
Land and land development		9,410		—		2		—		—		9,412
Commercial business		58,707		235		1,800		—		—		60,742
SBA commercial business		200,578		294		4,170		—		—		205,042
Consumer		50,701		—		27		—		—		50,728

Total	$	1,073,581	$	11,159	$	26,807	$	127	$	—	$	1,111,674

Troubled Debt Restructurings

Modification of a loan is considered to be a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the Company grants a concession to the debtor that it would not otherwise consider. By granting the concession, the Company expects to obtain more cash or other value from the debtor, or to increase the probability of receipt, than would be expected by not granting the concession. The concession may include, but is not limited to, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession will be granted when, as a result of the restructuring, the Company does not expect to collect all amounts due, including interest at the original stated rate. A concession may also be granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification.

Loans modified in a TDR may be retained on accrual status if the borrower has maintained a period of performance in which the borrower’s lending relationship was not greater than ninety days delinquent at the time of restructuring and the Company determines the future collection of principal and interest is reasonably assured. Loans modified in a TDR that are placed on nonaccrual status at the time of restructuring will continue on nonaccrual status until the Company determines the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms of at least six consecutive months.

The following table summarizes the Company’s recorded investment in TDRs at March 31, 2021 and September 30, 2020. There was $32,000 of specific reserve included in the allowance for loan losses related to TDRs at March 31, 2021. There was $538,000 of specific reserve included in the allowance for loan losses related to TDRs at September 30, 2020.


	Accruing		Nonaccrual		Total

	(In thousands)
March 31, 2021:
Residential real estate	$	1,407	$	—	$	1,407
Commercial real estate		438		489		927
SBA commercial real estate		—		3,296		3,296
Multifamily		—		648		648
Commercial business		124		1,545		1,669
Consumer		50		—		50

Total	$	2,019	$	5,978	$	7,997

September 30, 2020:
Residential real estate	$	2,562	$	116	$	2,678
Commercial real estate		449		512		961
SBA commercial real estate		—		3,800		3,800
Multifamily		—		698		698
Commercial business		2		1,668		1,670
Consumer		56		—		56

Total	$	3,069	$	6,794	$	9,863

The following table summarizes information regarding TDRs that were restructured during the three- and six-month periods ended March 31, 2021 and 2020:


	Number of	Pre-Modification		Post-Modification
	Loans	Principal Balance		Principal Balance

	(Dollars in thousands)
Three Months Ended March 31, 2021:
Commercial business	1	$	126	$	126
Total	1	$	126	$	126
Six Months Ended March 31, 2021:
Commercial business	1	$	126	$	126
Total	1	$	126	$	126
Three Months Ended March 31, 2020:
Residential real estate	1	$	1,099	$	1,100
SBA commercial real estate	1		3,831		3,832
Total	2	$	4,930	$	4,932
Six Months Ended March 31, 2020:
Residential real estate	1	$	1,099	$	1,100
SBA commercial real estate	1		3,831		3,832
Total	2	$	4,930	$	4,932

At March 31, 2021 and September 30, 2020, the Company had committed to lend $1,000 to customers with outstanding loans classified as TDRs.

There were principal charge-offs totaling $398,000 recorded as a result of TDRs during the six-month period ended March 31, 2021. There were no principal charge-offs recorded as a result of TDRs during the three-month period ended March 31, 2021, or during the three-and six-month periods ended March 31, 2020. There were no provisions for loan losses related to TDRs for the three-month and six-month periods ended March 31, 2021. Provisions for loan losses related to TDRs were $622,000 for the three-month and six-month periods ended March 31, 2020. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

During the three and six-month periods ended March 31, 2021 and 2020, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”. This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance indicates that, in consultation with the Financial Accounting Standards Board (“FASB”), the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on March 27, 2020. The CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. The Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, further extended the relief from TDR accounting for qualified modifications to the earlier of January 1, 2022 or 60 days after the national emergency concerning COVID-19 terminates. At March 31, 2021, loans totaling $14.0 million remained under the Company’s payment extension program or a loan forbearance agreement, of which $10.0 million related to commercial real estate and commercial business loans, $210,000 related to residential real estate and consumer loans, and $3.8 million related to SBA loan relationships. These payment extensions or loan forbearance agreements are generally for periods of three months or less, but may be extended if the borrower continues to be impacted by the COVID-19 pandemic.

SBA Loan Servicing Rights

The Company originates loans to commercial customers under the SBA 7(a) program and other programs, and sells the guaranteed portion of the SBA loans with servicing rights retained. Loan servicing rights on originated SBA loans that have been sold are initially recorded at fair value. Capitalized SBA servicing rights are then amortized in proportion to and over the period of estimated net servicing income. Impairment of SBA servicing rights is assessed using the present value of estimated future cash flows.

The aggregate fair value of SBA loan servicing rights approximates its carrying value. A valuation model employed by an independent third party calculates the present value of future cash flows and is used to estimate fair value at the date of sale and on a quarterly basis for impairment analysis purposes. Management periodically compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Key assumptions used to estimate the fair value of the SBA loan servicing rights include the discount rate and prepayment speed assumptions. For purposes of impairment, risk characteristics such as interest rate, loan type, term and investor type are used to stratify the SBA loan servicing rights. Impairment is recognized through a valuation allowance to the extent that fair value is less than the carrying amount. Changes in the valuation allowance are reported in other noninterest income in the consolidated statements of income.

The unpaid principal balance of SBA loans serviced for others was $228.5 million, $209.1 million and $168.4 million at March 31, 2021, September 30, 2020 and March 31, 2020, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $11,000 and $36,000 for the three and six-month periods ended March 31, 2021, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $13,000 and $30,000 for the three and six-month periods ended March 31, 2020, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $512,000 and $979,000 for the three and six-month periods ended March 31, 2021, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $407,000 and $819,000 for the three and six-month periods ended March 31, 2020, respectively. Net servicing income and costs are included in other noninterest income in the consolidated statements of income.

An analysis of SBA loan servicing rights for the three and six-month periods ended March 31, 2021 and 2020 is as follows:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021		2020		2021		2020

	(In thousands)
Balance, beginning of period	$	3,722	$	3,005	$	3,748	$	3,030
Servicing rights capitalized		746		329		1,072		551
Amortization		(175)		(250)		(376)		(467)
Direct write-offs		(92)		—		(275)		—
Change in valuation allowance		(79)		(193)		(47)		(223)
Balance, end of period	$	4,122	$	2,891	$	4,122	$	2,891

The valuation allowance related to SBA loan servicing rights at March 31, 2021 and September 30, 2020 was $79,000 and $32,000, respectively.

Mortgage Servicing Rights (“MSRs”)

The Company originates residential mortgage loans for sale in the secondary market and in August 2019 began retaining servicing for certain of these loans when they are sold. MSRs retained for originated loans that have been sold are accounted for at fair value. The fair value of MSRs are determined using the present value of estimated expected net servicing income using assumptions about expected mortgage loan prepayment rates, discount rate, servicing costs, and other economic factors, which are determined based on current market conditions. Changes in these underlying assumptions could cause the fair value of MSRs to change significantly in the future. Changes in fair value of MSRs are recorded in mortgage banking income in the accompanying consolidated statements of income. MSRs are subject to changes in value from, among other things, changes in interest rates, prepayments of the underlying loans and changes in the credit quality of the underlying loans.

A valuation model employed by an independent third party calculates the present value of future cash flows and is used to value the MSRs on a monthly basis. Management periodically compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Key assumptions used to estimate the fair value of the MSRs at March 31, 2021 and September 30, 2020 were as follows:


	Range of Assumption	Range of Assumption
	(Weighted Average)	(Weighted Average)
Assumption	March 31, 2021	September 30, 2020
Discount rate	9.00%	9.25%
Prepayment rate	2.78% to 79.65% (10.09%)	2.99% to 86.98% (18.08%)

The unpaid principal balance of residential mortgage loans serviced for others was $4.26 billion and $2.26 billion at March 31, 2021 and September 30, 2020, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing and other liabilities were $30.6 million and $19.3 million at March 31, 2021 and September 30, 2020, respectively. Contractually specified servicing fees (net of direct servicing expenses), late fees and other ancillary fees related to residential mortgage loans serviced for others were $1.5 million and $2.4 million for the three and six-month periods ended March 31, 2021, respectively. Contractually specified servicing fees (net of direct servicing expenses), late fees and other ancillary fees related to residential mortgage loans serviced for others were $106,000 and $96,000 for the three and six-month periods ended March 31, 2020, respectively. Contractually specified servicing fees are included in other noninterest income in the consolidated statements of income.

Changes in the carrying value of MSRs accounted for at fair value for the three and six-month periods ended March 31, 2021 and 2020 were as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021		2020		2021		2020

	(In thousands)
Fair value,beginning of period	$	31,510	$	3,254	$	21,703	$	934
Servicing rights capitalized		14,611		1,908		27,483		4,185
Changes in fair value related to:
Loan repayments		(2,733)		(145)		(4,549)		(184)
Change in valuation model inputs or assumptions		1,857		(962)		608		(880)
Balance, end of period	$	45,245	$	4,055	$	45,245	$	4,055