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ALLOWANCE FOR LOAN LOSSES | 12 Months Ended
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Mar. 31, 2021
ALLOWANCE FOR LOAN LOSSES |
ALLOWANCE FOR LOAN LOSSES | 5. ALLOWANCE FOR LOAN LOSSES The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):
|  | Commercial |  | Commercial |  |  |  |  | Multi- |  | Real Estate |  |  |  |  |  |  |  |  |
March 31, 2021 |  | Business |  | Real Estate |  | Land |  | Family |  | Construction |  | Consumer |  | Unallocated |  | Total
Beginning balance |  | $ | 2,008 |  | $ | 6,421 |  | $ | 230 |  | $ | 854 |  | $ | 1,149 |  | $ | 1,363 |  | $ | 599 |  | $ | 12,624
Provision for (recapture of) loan losses |  |  | 398 |  |  | 7,336 |  |  | 3 |  |  | (216) |  |  | (855) |  |  | (423) |  |  | 57 |  |  | 6,300
Charge-offs |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (124) |  |  | — |  |  | (124)
Recoveries |  |  | 10 |  |  | 332 |  |  | — |  |  | — |  |  | — |  |  | 36 |  |  | — |  |  | 378
Ending balance |  | $ | 2,416 |  | $ | 14,089 |  | $ | 233 |  | $ | 638 |  | $ | 294 |  | $ | 852 |  | $ | 656 |  | $ | 19,178
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,808 |  | $ | 5,053 |  | $ | 254 |  | $ | 728 |  | $ | 1,457 |  | $ | 1,447 |  | $ | 710 |  | $ | 11,457
Provision for (recapture of) loan losses |  |  | 264 |  |  | 1,368 |  |  | (24) |  |  | 126 |  |  | (308) |  |  | (65) |  |  | (111) |  |  | 1,250
Charge-offs |  |  | (64) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (82) |  |  | — |  |  | (146)
Recoveries |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 63 |  |  | — |  |  | 63
Ending balance |  | $ | 2,008 |  | $ | 6,421 |  | $ | 230 |  | $ | 854 |  | $ | 1,149 |  | $ | 1,363 |  | $ | 599 |  | $ | 12,624
March 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,668 |  | $ | 4,914 |  | $ | 220 |  | $ | 822 |  | $ | 618 |  | $ | 1,809 |  | $ | 715 |  | $ | 10,766
Provision for (recapture of) loan losses |  |  | 139 |  |  | (685) |  |  | 34 |  |  | (94) |  |  | 839 |  |  | (178) |  |  | (5) |  |  | 50
Charge-offs |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (291) |  |  | — |  |  | (291)
Recoveries |  |  | 1 |  |  | 824 |  |  | — |  |  | — |  |  | — |  |  | 107 |  |  | — |  |  | 932
Ending balance |  | $ | 1,808 |  | $ | 5,053 |  | $ | 254 |  | $ | 728 |  | $ | 1,457 |  | $ | 1,447 |  | $ | 710 |  | $ | 11,457
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
|  | Individually |  | Collectively |  |  |  |  | Individually |  | Collectively |  |  |
|  | Evaluated |  | Evaluated |  |  |  |  | Evaluated |  | Evaluated |  |  |
|  | for |  | for |  |  |  |  | for |  | for |  |  |
March 31, 2021 |  | Impairment |  | Impairment |  | Total |  | Impairment |  | Impairment |  | Total
Commercial business |  | $ | — |  | $ | 2,416 |  | $ | 2,416 |  | $ | 120 |  | $ | 265,025 |  | $ | 265,145
Commercial real estate |  |  | — |  |  | 14,089 |  |  | 14,089 |  |  | 1,468 |  |  | 541,999 |  |  | 543,467
Land |  |  | — |  |  | 233 |  |  | 233 |  |  | 710 |  |  | 13,330 |  |  | 14,040
Multi-family |  |  | — |  |  | 638 |  |  | 638 |  |  | 753 |  |  | 44,261 |  |  | 45,014
Real estate construction |  |  | — |  |  | 294 |  |  | 294 |  |  | — |  |  | 16,990 |  |  | 16,990
Consumer |  |  | 11 |  |  | 841 |  |  | 852 |  |  | 530 |  |  | 58,049 |  |  | 58,579
Unallocated |  |  | — |  |  | 656 |  |  | 656 |  |  | — |  |  | — |  |  | —
Total |  | $ | 11 |  | $ | 19,167 |  | $ | 19,178 |  | $ | 3,581 |  | $ | 939,654 |  | $ | 943,235
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  | $ | — |  | $ | 2,008 |  | $ | 2,008 |  | $ | 139 |  | $ | 178,890 |  | $ | 179,029
Commercial real estate |  |  | — |  |  | 6,421 |  |  | 6,421 |  |  | 2,378 |  |  | 505,493 |  |  | 507,871
Land |  |  | — |  |  | 230 |  |  | 230 |  |  | 714 |  |  | 13,312 |  |  | 14,026
Multi-family |  |  | — |  |  | 854 |  |  | 854 |  |  | 1,549 |  |  | 56,825 |  |  | 58,374
Real estate construction |  |  | — |  |  | 1,149 |  |  | 1,149 |  |  | — |  |  | 64,843 |  |  | 64,843
Consumer |  |  | 12 |  |  | 1,351 |  |  | 1,363 |  |  | 432 |  |  | 86,934 |  |  | 87,366
Unallocated |  |  | — |  |  | 599 |  |  | 599 |  |  | — |  |  | — |  |  | —
Total |  | $ | 12 |  | $ | 12,612 |  | $ | 12,624 |  | $ | 5,212 |  | $ | 906,297 |  | $ | 911,509
Changes in the allowance for unfunded loan commitments were as follows for the years indicated (in thousands):
|  | Year Ended March 31,
|  | 2021 |  | 2020 |  | 2019
Beginning balance |  | $ | 474 |  | $ | 469 |  | $ | 480
Net change in allowance for unfunded loan commitments |  |  | 35 |  |  | 5 |  |  | (11)
Ending balance |  | $ | 509 |  | $ | 474 |  | $ | 469
The following tables present an analysis of loans by aging category at the dates indicated (in thousands):
|  |  |  |  |  |  |  |  |  |  | Total |  |  |  |  |  |
|  |  |  |  | 90 Days |  |  |  |  | Past |  |  |  |  |  |
|  |  |  |  | and |  |  |  |  | Due and |  |  |  |  | Total
|  | 30-89 Days |  | Greater |  |  |  |  | Non- |  |  |  |  | Loans
March 31, 2021 |  | Past Due |  | Past Due |  | Non-accrual |  | accrual |  | Current |  | Receivable
Commercial business |  | $ | 98 |  | $ | 175 |  | $ | 182 |  | $ | 455 |  | $ | 264,690 |  | $ | 265,145
Commercial real estate |  |  | — |  |  | — |  |  | 144 |  |  | 144 |  |  | 543,323 |  |  | 543,467
Land |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,040 |  |  | 14,040
Multi-family |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 45,014 |  |  | 45,014
Real estate construction |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,990 |  |  | 16,990
Consumer |  |  | 143 |  |  | 1 |  |  | 69 |  |  | 213 |  |  | 58,366 |  |  | 58,579
Total |  | $ | 241 |  | $ | 176 |  | $ | 395 |  | $ | 812 |  | $ | 942,423 |  | $ | 943,235
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  | $ | — |  | $ | — |  | $ | 201 |  | $ | 201 |  | $ | 178,828 |  | $ | 179,029
Commercial real estate |  |  | — |  |  | — |  |  | 1,014 |  |  | 1,014 |  |  | 506,857 |  |  | 507,871
Land |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,026 |  |  | 14,026
Multi-family |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 58,374 |  |  | 58,374
Real estate construction |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 64,843 |  |  | 64,843
Consumer |  |  | 271 |  |  | — |  |  | 180 |  |  | 451 |  |  | 86,915 |  |  | 87,366
Total |  | $ | 271 |  | $ | — |  | $ | 1,395 |  | $ | 1,666 |  | $ | 909,843 |  | $ | 911,509
Interest income foregone on non-accrual loans was $49,000, $75,000 and $94,000 for the years ended March 31, 2021, 2020 and 2019, 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 strengths 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):
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total
|  |  |  |  | Special |  |  |  |  |  |  |  |  |  |  | Loans
March 31, 2021 |  | Pass |  | Mention |  | Substandard |  | Doubtful |  | Loss |  | Receivable
Commercial business |  | $ | 264,564 |  | $ | 399 |  | $ | 182 |  | $ | — |  | $ | — |  | $ | 265,145
Commercial real estate |  |  | 494,010 |  |  | 42,045 |  |  | 7,412 |  |  | — |  |  | — |  |  | 543,467
Land |  |  | 14,040 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,040
Multi-family |  |  | 44,941 |  |  | 49 |  |  | 24 |  |  | — |  |  | — |  |  | 45,014
Real estate construction |  |  | 16,990 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,990
Consumer |  |  | 58,510 |  |  | — |  |  | 69 |  |  | — |  |  | — |  |  | 58,579
Total |  | $ | 893,055 |  | $ | 42,493 |  | $ | 7,687 |  | $ | — |  | $ | — |  | $ | 943,235
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  | $ | 177,399 |  | $ | 1,282 |  | $ | 348 |  | $ | — |  | $ | — |  | $ | 179,029
Commercial real estate |  |  | 506,794 |  |  | 63 |  |  | 1,014 |  |  | — |  |  | — |  |  | 507,871
Land |  |  | 14,026 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,026
Multi-family |  |  | 58,295 |  |  | 45 |  |  | 34 |  |  | — |  |  | — |  |  | 58,374
Real estate construction |  |  | 64,843 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 64,843
Consumer |  |  | 87,186 |  |  | — |  |  | 180 |  |  | — |  |  | — |  |  | 87,366
Total |  | $ | 908,543 |  | $ | 1,390 |  | $ | 1,576 |  | $ | — |  | $ | — |  | $ | 911,509
Impaired loans – The following tables present information regarding impaired loans at the dates and for the years indicated (in thousands):
|  | Recorded |  | Recorded |  |  |  |  |  |  |  |  |
|  | Investment |  | Investment |  |  |  |  |  |  |  |  |
|  | with |  | with |  |  |  |  |  |  |  | Related
|  | No Specific |  | Specific |  | Total |  | Unpaid |  | Specific
|  | Valuation |  | Valuation |  | Recorded |  | Principal |  | Valuation
March 31, 2021 |  | Allowance |  | Allowance |  | Investment |  | Balance |  | Allowance
Commercial business |  | $ | 120 |  | $ | — |  | $ | 120 |  | $ | 157 |  | $ | —
Commercial real estate |  |  | 1,468 |  |  | — |  |  | 1,468 |  |  | 1,556 |  |  | —
Land |  |  | 710 |  |  | — |  |  | 710 |  |  | 740 |  |  | —
Multi-family |  |  | 753 |  |  | — |  |  | 753 |  |  | 856 |  |  | —
Consumer |  |  | 278 |  |  | 252 |  |  | 530 |  |  | 643 |  |  | 11
Total |  | $ | 3,329 |  | $ | 252 |  | $ | 3,581 |  | $ | 3,952 |  | $ | 11
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  | $ | 139 |  | $ | — |  | $ | 139 |  | $ | 170 |  | $ | —
Commercial real estate |  |  | 2,378 |  |  | — |  |  | 2,378 |  |  | 3,405 |  |  | —
Land |  |  | 714 |  |  | — |  |  | 714 |  |  | 748 |  |  | —
Multi-family |  |  | 1,549 |  |  | — |  |  | 1,549 |  |  | 1,662 |  |  | —
Consumer |  |  | 295 |  |  | 137 |  |  | 432 |  |  | 543 |  |  | 12
Total |  | $ | 5,075 |  | $ | 137 |  | $ | 5,212 |  | $ | 6,528 |  | $ | 12
|  | Year ended |  | Year ended |  | Year ended
|  | March 31, 2021 |  | March 31, 2020 |  | March 31, 2019
|  |  |  |  | Interest |  |  |  |  | Interest |  |  |  |  | Interest
|  |  |  |  | Recognized |  |  |  |  | Recognized |  |  |  |  | Recognized
|  | Average |  | on |  | Average |  | on |  | Average |  | on
|  | Recorded |  | Impaired |  | Recorded |  | Impaired |  | Recorded |  | Impaired
|  | Investment |  | Loans |  | Investment |  | Loans |  | Investment |  | Loans
Commercial business |  | $ | 130 |  | $ | — |  | $ | 150 |  | $ | 62 |  | $ | 334 |  | $ | —
Commercial real estate |  |  | 2,008 |  |  | 61 |  |  | 2,420 |  |  | 40 |  |  | 2,607 |  |  | 64
Land |  |  | 713 |  |  | 40 |  |  | 720 |  |  | 90 |  |  | 742 |  |  | 7
Multi-family |  |  | 1,313 |  |  | 77 |  |  | 1,573 |  |  | — |  |  | 1,620 |  |  | 88
Consumer |  |  | 494 |  |  | 29 |  |  | 494 |  |  | 29 |  |  | 992 |  |  | 45
Total |  | $ | 4,658 |  | $ | 207 |  | $ | 5,357 |  | $ | 221 |  | $ | 6,295 |  | $ | 204
The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above tables. TDRs and other loan modifications – 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, 2021 |  | March 31, 2020
|  | Accrual |  | Nonaccrual |  | Total |  | Accrual |  | Nonaccrual |  | Total
Commercial business |  | $ | — |  | $ | 120 |  | $ | 120 |  | $ | — |  | $ | 139 |  | $ | 139
Commercial real estate |  |  | 1,324 |  |  | 144 |  |  | 1,468 |  |  | 1,364 |  |  | 1,014 |  |  | 2,378
Land |  |  | 710 |  |  | — |  |  | 710 |  |  | 714 |  |  | — |  |  | 714
Multi-family |  |  | 753 |  |  | — |  |  | 753 |  |  | 1,549 |  |  | — |  |  | 1,549
Consumer |  |  | 530 |  |  | — |  |  | 530 |  |  | 432 |  |  | — |  |  | 432
Total |  | $ | 3,317 |  | $ | 264 |  | $ | 3,581 |  | $ | 4,059 |  | $ | 1,153 |  | $ | 5,212
At March 31, 2021, the Company had no commitments to lend additional funds on these loans. At March 31, 2021, all of the Company’s TDRs were paying as agreed. There was one new TDR for the year ended March 31, 2021. The new TDR is a consumer real estate loan secured by a one-to-four family property located in Northwest Oregon where the Company granted a deferral of principal, interest, and escrow payments. The recorded investment in the loan prior to modification and at March 31, 2021 was $129,000. There was one new TDR for the year ended March 31, 2020. This TDR is a consumer real estate loan secured by a 1-4 family property located in Southwest Washington, for which the Company granted a rate reduction and extended the maturity date by 10 years. The recorded investment in the loan prior to modification and at March 31, 2020 was $27,000 and $25,000, respectively. There were no new TDRs for the year ended March 31, 2019. In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by banking regulatory agencies provides that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. Loan modifications in accordance with the CARES Act are still subject to an impairment evaluation. See Note 1 - Summary of Significant Accounting Policies for more information.

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