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Allowance For Loan Losses

12 Months Ended

Mar. 31, 2016

5. ALLOWANCE FOR LOAN LOSSES

The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):

March 31, 2016	Commercial Business	Commercial Real Estate	Land	Multi-Family	Real Estate Construction	Consumer	Unallocated	Total

Beginning balance	$1,263	$4,268	$539	$348	$769	$2,548	$1,027	$10,762
Provision for (recapture of) loan losses	(245)	5	(545)	364	(359)	(51)	(319)	(1,150)
Charge-offs	-	-	-	-	-	(274)	-	(274)
Recoveries	30	-	331	-	6	180	-	547
Ending balance	$1,048	$4,273	$325	$712	$416	$2,403	$708	$9,885

March 31, 2015	Commercial Business	Commercial Real Estate	Land	Multi-Family	Real Estate Construction	Consumer	Unallocated	Total

Beginning balance	$2,409	$5,269	$340	$203	$387	$2,653	$1,290	$12,551
Provision for (recapture of) loan losses	(1,060)	(768)	(72)	145	382	(164)	(263)	(1,800)
Charge-offs	(120)	(233)	-	-	-	(111)	-	(464)
Recoveries	34	-	271	-	-	170	-	475
Ending balance	$1,263	$4,268	$539	$348	$769	$2,548	$1,027	$10,762

March 31, 2014	Commercial Business	Commercial Real Estate	Land	Multi-Family	Real Estate Construction	Consumer	Unallocated	Total

Beginning balance	$2,128	$5,979	$2,019	$541	$221	$2,949	$1,806	$15,643
Provision for (recapture of) loan losses	95	(417)	(2,439)	(338)	173	(258)	(516)	(3,700)
Charge-offs	(340)	(316)	(90)	-	(11)	(349)	-	(1,106)
Recoveries	526	23	850	-	4	311	-	1,714
Ending balance	$2,409	$5,269	$340	$203	$387	$2,653	$1,290	$12,551

The following tables present an analysis of loans receivable and the allowance for loan losses, based on impairment methodology, at the dates indicated (in thousands):

	Allowance for Loan Losses						Recorded Investment in Loans
March 31, 2016		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total

Commercial business	$	-	$	1,048	$	1,048	$	192	$	69,205	$	69,397
Commercial real estate		-		4,273		4,273		9,802		343,947		353,749
Land		-		325		325		801		11,244		12,045
Multi-family		-		712		712		1,731		32,002		33,733
Real estate construction		-		416		416		-		26,731		26,731
Consumer		110		2,293		2,403		1,678		127,486		129,164
Unallocated		-		708		708		-		-		-
Total	$	110	$	9,775	$	9,885	$	14,204	$	610,615	$	624,819

March 31, 2015

Commercial business	$	-	$	1,263	$	1,263	$	1,091	$	76,095	$	77,186
Commercial real estate		-		4,268		4,268		15,939		283,752		299,691
Land		-		539		539		801		14,557		15,358
Multi-family		-		348		348		1,922		28,535		30,457
Real estate construction		-		769		769		-		30,498		30,498
Consumer		147		2,401		2,548		2,622		123,960		126,582
Unallocated		-		1,027		1,027		-		-		-
Total	$	147	$	10,615	$	10,762	$	22,375	$	557,397	$	579,772

Changes in the allowance for unfunded loan commitments were as follows for the periods indicated (in thousands):

	Year Ended March 31,
	2016		2015			2014
Beginning balance	$	259	$	294		$	229
Net change in allowance for unfunded loan commitments		65		(35	)		65
Ending balance	$	324	$	259		$	294

The following tables present an analysis of loans by aging category at the dates indicated (in thousands):

March 31, 2016		30-89 Days Past Due		90 Days and Greater Past Due		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable

Commercial business	$	-	$	-	$	-	$	-	$	69,397	$	69,397
Commercial real estate		-		-		1,559		1,559		352,190		353,749
Land		-		-		801		801		11,244		12,045
Multi-family		-		-		-		-		33,733		33,733
Real estate construction		-		-		-		-		26,731		26,731
Consumer		611		20		334		965		128,199		129,164
Total	$	611	$	20	$	2,694	$	3,325	$	621,494	$	624,819
March 31, 2015

Commercial business	$	359	$	-	$	-	$	359	$	76,827	$	77,186
Commercial real estate		225		-		3,291		3,516		296,175		299,691
Land		-		-		801		801		14,557		15,358
Multi-family		-		-		-		-		30,457		30,457
Real estate construction		-		-		-		-		30,498		30,498
Consumer		902		-		1,226		2,128		124,454		126,582
Total	$	1,486	$	-	$	5,318	$	6,804	$	572,968	$	579,772

Interest income foregone on non-accrual loans was $112,000, $433,000 and $949,000 for the years ended March 31, 2016, 2015 and 2014, respectively.

Credit quality indicators: The Company monitors credit risk in its loan portfolio using a risk rating system (on a scale of one to nine) for all commercial (non-consumer) loans. The risk rating system is a measure of the credit risk of the borrower based on their historical, current and anticipated future financial characteristics. The Company assigns a risk rating to each commercial loan at origination and subsequently updates these ratings, as necessary, so that the risk rating continues to reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earnings trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its allowance for loan losses.

Pass – These loans have a risk rating between 1 and 4 and are to borrowers that meet normal credit standards. Any deficiencies in satisfactory asset quality, liquidity, debt servicing capacity and coverage are offset by strengths in other areas. The borrower currently has the capacity to perform according to the loan terms. Any concerns about risk factors such as stability of margins, stability of cash flows, liquidity, dependence on a single product/supplier/customer, depth of management, etc. are offset by strength in other areas. Typically, these loans are secured by the operating assets of the borrower and/or real estate. The borrower’s management is considered competent. The borrower has the ability to repay the debt in the normal course of business.

Watch – These loans have a risk rating of 5 and are included in the “pass” rating. However, there would typically be some reason for additional management oversight, such as the borrower’s recent financial setbacks and/or deteriorating financial position, industry concerns and failure to perform on other borrowing obligations. Loans with this rating are monitored closely in an effort to correct deficiencies.

Special mention – These loans have a risk rating of 6 and are rated in accordance with regulatory guidelines. These loans 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 loan or in the credit position at some future date. These loans pose elevated risk but their weakness does not yet justify a “Substandard” classification.

Substandard – These loans have a risk rating of 7 and are rated in accordance with regulatory guidelines, for which the accrual of interest may or may not be discontinued. By definition under regulatory guidelines, a “substandard” loan has defined weaknesses which make payment default or principal exposure likely but not yet certain. Repayment of such loans is likely to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.

Doubtful – These loans have a risk rating of 8 and are rated in accordance with regulatory guidelines. Such loans are placed on non-accrual status and repayment may be dependent upon collateral which has value that is difficult to determine or upon some near-term event which lacks certainty.

Loss – These loans have a risk rating of 9 and are rated in accordance with regulatory guidelines. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

The following tables present an analysis of loans by credit quality indicators at the dates indicated (in thousands):

March 31, 2016		Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans Receivable

Commercial business	$	68,221	$	813	$	363	$	-	$	-	$	69,397
Commercial real estate		343,306		7,659		2,784		-		-		353,749
Land		9,760		1,484		801		-		-		12,045
Multi-family		33,721		-		12		-		-		33,733
Real estate construction		26,731		-		-		-		-		26,731
Consumer		128,830		-		334		-		-		129,164
Total	$	610,569	$	9,956	$	4,294	$	-	$	-	$	624,819

March 31, 2015

Commercial business	$	75,643	$	977	$	566	$	-	$	-	$	77,186
Commercial real estate		277,156		15,570		6,965		-		-		299,691
Land		11,665		2,892		801		-		-		15,358
Multi-family		28,508		14		1,935		-		-		30,457
Real estate construction		28,670		-		1,828		-		-		30,498
Consumer		125,356		-		1,226		-		-		126,582
Total	$	546,998	$	19,453	$	13,321	$	-	$	-	$	579,772

Impaired loans: The following tables present the total and average recorded investment in impaired loans at the dates and for the periods indicated (in thousands):

March 31, 2016		Recorded Investment with No Specific Valuation Allowance		Recorded Investment with Specific Valuation Allowance		Total Recorded Investment		Unpaid Principal Balance		Related Specific Valuation Allowance

Commercial business	$	192	$	-	$	192	$	192	$	-
Commercial real estate		9,802		-		9,802		10,758		-
Land		801		-		801		807		-
Multi-family		1,731		-		1,731		1,871		-
Consumer		477		1,201		1,678		1,845		110
Total	$	13,003	$	1,201	$	14,204	$	15,473	$	110
March 31, 2015
Commercial business	$	1,091	$	-	$	1,091	$	1,125	$	-
Commercial real estate		15,939		-		15,939		17,188		-
Land		801		-		801		804		-
Multi-family		1,922		-		1,922		2,058		-
Consumer		1,276		1,346		2,622		3,211		147
Total	$	21,029	$	1,346	$	22,375	$	24,386	$	147

	Year ended March 31, 2016				Year ended March 31, 2015				Year ended March 31, 2014
		Average Recorded Investment		Interest Recognized on Impaired Loans		Average Recorded Investment		Interest Recognized on Impaired Loans		Average Recorded Investment		Interest Recognized on Impaired Loans

Commercial business	$	542	$	17	$	1,075	$	62	$	1,150	$	43
Commercial real estate		13,130		456		17,136		478		19,451		472
Land		801		-		817		-		1,854		5
Multi-family		1,842		99		2,176		17		2,758		16
Real estate construction		-		-		-		-		69		-
Consumer		1,947		72		3,187		85		3,679		47
Total	$	18,262	$	644	$	24,391	$	642	$	28,961	$	583

The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above table.

TDRs are loans for which the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk. TDRs are considered impaired loans and as such, impairment is measured as described for impaired loans in Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses.

The following table presents TDRs by interest accrual status at the dates indicated (in thousands):

	March 31, 2016							March 31, 2015
		Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total

Commercial business	$	192	$	-	$	192	$	1,091	$	-	$	1,091
Commercial real estate		8,244		1,289		9,533		12,647		2,298		14,945
Land		-		801		801		-		801		801
Multi-family		1,731		-		1,731		1,922		-		1,922
Consumer		1,678		-		1,678		1,673		949		2,622
Total	$	11,845	$	2,090	$	13,935	$	17,333	$	4,048	$	21,381

At March 31, 2016, the Company had no commitments to lend additional funds on these loans. At March 31, 2016, all of the Company’s TDRs were paying as agreed except for one of the Company’s TDRs that defaulted after the loan was modified.

The following table presents new TDRs for the periods indicated (dollars in thousands):

	Year ended March 31, 2016						Year ended March 31, 2015					Year ended March 31, 2014
		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial business		-	$	-	$	-	-	$	-	$	-	3	$	504	$	465
Commercial real estate		-		-		-	1		344		327	4		6,295		6,210
Multi-family		-		-		-	-		-		-	1		2,562		2,014
Consumer		-		-		-	-		-		-	4		573		561
Total		-	$	-	$	-	1	$	344	$	327	12	$	9,934	$	9,250

There were no loans modified as a TDR within the previous twelve months that subsequently defaulted in the twelve months ended March 31, 2016.