SIGNIFICANT EVENTS

9 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COVID-19 Pandemic

The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020. In March 2020, the U.S. declared a national emergency and imposed travel restrictions, limitations of business operations in certain industries, and other efforts in order to impede the spread of COVID-19. Since the onset of this pandemic, macroeconomic conditions and markets have significantly deteriorated. While the process of phased re-openings of the economies of many states began in May and June, COVID-19 continues to have a significant effect on individuals, businesses and the economy. In response to the impacts of COVID-19, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

Accommodations to Borrowers

The Company is participating in the Paycheck Protection Program ("PPP"), which is being administered by the Small Business Administration ("SBA"). It is the Company's understanding that loans funded through the PPP program are fully guaranteed by the U.S. government and that a portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. See Note 6. Loans and Leases, Net for further information related to this program.

In response to the COVID-19 pandemic impact on customers, the Company is engaging in more frequent communication with borrowers to better understand their situation and challenges and has been offering credit-worthy borrowers experiencing temporary hardship certain loan and lease modifications ("COVID modifications"), such as payment deferrals, as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. The Company elected to treat COVID modifications on leases as part of the enforceable rights and obligations of the parties under the existing lease contract, resulting in these payment deferrals being treated as variable lease payments under the existing lease versus lease modifications. Additionally, for COVID modifications on loans, the Company adjusted its effective interest rate to reflect the payment deferral modification and continued accruing interest during this period. Short-term modifications made on a good faith basis in response to COVID-19 borrowers whose payments were current prior to any relief, are not to be considered troubled debt restructurings, and will not be considered delinquent so long as they meet their revised obligations in the modification agreement.

Through June 30, 2020, the Company has granted deferral payments on a total of $352.1 million of loan, lease and rental equipment balances. As of June 30, 2020, $292.2 million of those balances were still in their deferment period. In addition, the Company has made other COVID-19 related modifications on a total of $52.9 million, of which $34.6 million are still active as of June 30, 2020. The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

The table below presents the outstanding balance of active COVID-19 related modifications by type and category as of June 30, 2020.


	June 30, 2020
(Dollars in Thousands)	COVID-19 Related Payment Deferrals		Other COVID-19 Related Modifications
National Lending
Term lending	$	88,227	$	—
Asset based lending	324		17,333
Factoring	3,564		17,295
Lease financing	27,310		—
Insurance premium finance	5,505		—
SBA/USDA	7,724		—
Other commercial finance	74		—
Commercial finance	132,728		34,628
Consumer credit products	462		—
Other consumer finance	6,855		—
Consumer finance	7,317		—


Total National Lending	140,045		34,628
Community Banking
Commercial real estate and operating	148,838		—
Consumer one-to-four family real estate and other	2,534		—

Total Community Banking	151,372		—
Total loans and leases	291,417		34,628
Rental equipment	819		—
Total COVID-19 related modifications	$	292,236	$	34,628

Financial Impact

The Company recorded $15.1 million in provision expense during the three months ended June 30, 2020, compared to $9.1 million for the comparable period in the prior year. The increase in provision was primarily within the remaining community banking and commercial finance portfolios and was attributable to the increased stress that the hospitality loans and small ticket loan and lease relationships have experienced stemming from the ongoing uncertainty related to the COVID-19 pandemic. Loans and leases that received short-term payment deferrals were also analyzed and additional provision was applied as appropriate. As the Company obtains additional information on the macroeconomic reactions and impact on borrowers, the provision estimate will be revised as necessary in future periods to maintain an appropriate and supportable level. The Company’s approach to estimating the COVID-19 impact on credit quality is presented in Note 6. Loans and Leases, Net.

The Company's interest and fee income could be reduced as a result of COVID-19. While interest and fees will continue to accrue in accordance with GAAP, a decrease in loan demand could lead to slower loan growth or even a contraction in loan balances in the near term. In addition, should eventual credit losses emerge, interest income and fees accrued may need to be reversed in future periods. At this time, the Company is unable to project the materiality of such an impact. While the Company has seen a slight contraction in loan balances in some categories during the third quarter of fiscal 2020, such as asset-based lending and factoring, other categories have continued to grow. No additional significant financial impacts directly related to COVID-19 were identified for the nine months ended June 30, 2020.

Asset Valuation

In June 2020, the Company assessed its financial assets potentially impacted by the deteriorating market conditions due to the COVID-19 outbreak occurring globally. Included in the assessment were the loan and lease portfolios, other-than-temporary impairment ("OTTI") in investment portfolios, collectability of operating lease payments, goodwill impairment and intangible asset impairment. Based on the known events and circumstances at the time of the assessment, the Company has determined no impairment is needed as of June 30, 2020, other than the provision for loan and lease losses noted above. The Company will continue to observe and monitor the pandemic-related circumstances to determine whether further impairment assessments are needed in future periods. In the event it is determined that all or a portion of its goodwill or intangible assets is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings, but would not impact regulatory capital.