
	Three Months Ended September 30, 2021 (Continued)

	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	258	$	1,740		$	62		$	6,599
Provision charged to expense		63		(174	)		9			(127	)
Losses charged off		—		—			(10	)		(10	)
Recoveries		—		5			2			8

Balance, end of period	$	321	$	1,571		$	63		$	6,470

Ending balance: individually evaluated for impairment	$	—	$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	321	$	1,571		$	63		$	6,470

Loans:
Ending balance	$	31,209	$	88,962		$	7,615		$	512,984

Ending balance: individually evaluated for impairment	$	—	$	43		$	—		$	1,129

Ending balance: collectively evaluated for impairment	$	31,209	$	88,919		$	7,615		$	511,855


	Year Ended June 30, 2021 Real Estate Loans

	One- to Four- Family			Multi-Family		Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of year	$	1,044		$	1,514	$	1,706	$	87
Provision charged to expense		(64	)		160		125		(20	)
Losses charged off		(15	)		—		—		—
Recoveries		2			—		—		—

Balance, end of year	$	967		$	1,674	$	1,831	$	67

Ending balance: individually evaluated for impairment	$	—		$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	967		$	1,674	$	1,831	$	67

Loans:
Ending balance	$	117,435		$	104,433	$	155,884	$	6,688

Ending balance: individually evaluated for impairment	$	1,252		$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	116,183		$	104,433	$	155,884	$	6,688


	Year Ended June 30, 2021 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	240	$	1,583		$	60		$	6,234
Provision charged to expense		18		611			14			844
Losses charged off		—		(473	)		(25	)		(513	)
Recoveries		—		19			13			34

Balance, end of year	$	258	$	1,740		$	62		$	6,599

Ending balance: individually evaluated for impairment	$	—	$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	258	$	1,740		$	62		$	6,599

Loans:
Ending balance	$	25,345	$	103,088		$	7,653		$	520,526

Ending balance: individually evaluated for impairment	$	—	$	46		$	—		$	1,298

Ending balance: collectively evaluated for impairment	$	25,345	$	103,042		$	7,653		$	519,228


	Three Months Ended September 30, 2020 Real Estate Loans

	One- to Four- Family			Multi-Family		Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of year	$	1,044		$	1,514	$	1,706	$	87
Provision charged to expense		4			227		168		(5	)
Losses charged off		(15	)		—		—		—
Recoveries		—			—		—		—

Balance, end of year	$	1,033		$	1,741	$	1,874	$	82

Ending balance: individually evaluated for impairment	$	—		$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	1,033		$	1,741	$	1,874	$	82

Loans:	$	125,574		$	106,886	$	157,096	$	8,147

Ending balance	$	1,277		$	—	$	—	$	—

Ending balance: individually evaluated for impairment	$	124,297		$	106,886	$	157,096	$	8,147


	Three Months Ended September 30, 2020 (Continued)
	Construction			Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	240		$	1,583		$	60		$	6,234
Provision charged to expense		(155	)		61			15			315
Losses charged off		—			(29	)		(13	)		(57	)
Recoveries		—			9			5			14

Balance, end of year	$	85		$	1,624		$	67		$	6,506

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	85		$	1,624		$	67		$	6,506

Loans:
Ending balance	$	10,050		$	109,182		$	8,098		$	525,033

Ending balance: individually evaluated for impairment	$	—		$	55		$	4		$	1,336

Ending balance: collectively evaluated for impairment	$	10,050		$	109,127		$	8,094		$	523,697

Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.

The allowance for loan losses represents an estimate of the amount of losses believed inherent in our loan portfolio at the balance sheet date. The allowance calculation involves a high degree of estimation that management attempts to mitigate through the use of objective historical data where available. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Overall, we believe the reserve to be consistent with prior periods and adequate to cover the estimated losses in our loan portfolio.

The Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for estimated credit losses on individual loans that are determined to be impaired through the Company’s review for identified problem loans; and (2) a general allowance based on estimated credit losses inherent in the remainder of the loan portfolio.

The specific allowance is measured by determining the present value of expected cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expense. Factors used in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of the collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition for loans secured by real estate, the Company also considers the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

The Company establishes a general allowance for loans that are not deemed impaired to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. The general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on the Company’s historical loss experience, delinquency trends, and management’s evaluation of the collectability of the loan portfolio. In certain instances, the historical loss experience could be adjusted if similar risks are not inherent in the remaining portfolio. The allowance is then adjusted for qualitative factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These qualitative factors may include: (1) Management’s assumptions regarding the minimal level of risk for a given loan category; (2) changes in lending policies and procedures, including changes in underwriting standards, and

charge-off

and recovery practices not considered elsewhere in estimating credit losses; (3) changes in international, national, regional and local economics and business conditions and developments that affect the collectability of the portfolio, including the conditions of various market segments; (4) changes in the nature and volume of the portfolio and in the terms of loans; (5) changes in the experience, ability, and depth of the lending officers and other relevant staff; (6) changes in the volume and severity of past due loans, the volume of

non-accrual

loans, the volume of troubled debt restructured and other loan modifications, and the volume and severity of adversely classified loans; (7) changes in the quality of the loan review system; (8) changes in the value of the underlying collateral for collateral-dependent loans; (9) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (10) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The applied loss factors are

re-evaluated

quarterly to ensure their relevance in the current environment.

Although the Company’s policy allows for a general valuation allowance on certain smaller-balance, homogenous pools of loans classified as substandard, the Company has historically evaluated every loan classified as substandard, regardless of size, for impairment as part of the review for establishing specific allowances. The Company’s policy also allows for general valuation allowance on certain smaller-balance, homogenous pools of loans which are loans criticized as special mention or watch. A separate general allowance calculation is made on these loans based on historical measured weakness, and which is no less than twice the amount of the general allowance calculated on the

non-classified

loans.

There have been no changes to the Company’s accounting policies or methodology from the prior periods.

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, historical payment experience, credit documentation, public information and current economic trends, among other factors. All loans are graded at inception of the loan.

Subsequently, analyses are performed on an annual basis and grade changes are made as necessary. Interim grade reviews may take place if circumstances of the borrower warrant a more timely review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Watch,” “Substandard,” “Doubtful,” and “Loss.” The Company uses the following definitions for risk ratings:

Pass –

Loans classified as pass are well protected by the ability of the borrower to pay or by the value of the asset or underlying collateral.

Watch –

Loans classified as watch 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 any pledged collateral. 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 institution 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 the portion of the loan that is considered uncollectible so that its continuance as an asset is not warranted. The amount of the loss determined will be charged off.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Residential

One-

to Four-Family and Equity Lines of Credit Real Estate:

The residential

one-

to four-family real estate loans are generally secured by owner-occupied

one-

to four-family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Commercial and Multi-family Real Estate:

Commercial and multi-family real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Company’s market areas.

Construction Real Estate:

Construction real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Company’s market areas.

Commercial:

The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer:

The consumer loan portfolio consists of various term loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s market area) and the creditworthiness of a borrower.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity:


	Real Estate Loans

	One- to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total
September 30, 2021 :
Pass	$	116,337	$	96,950	$	162,821	$	6,274	$	31,209	$	83,868	$	7,615	$	505,074
Watch		1,124		—		943		—		—		5,051		—		7,118
Substandard		393		261		95		—		—		43		—		792
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

Total	$	117,854	$	97,211	$	163,859	$	6,274	$	31,209	$	88,962	$	7,615	$	512,984


	Real Estate Loans

	One- to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total
June 30, 2021:
Pass	$	116,980	$	104,170	$	154,833	$	6,688	$	25,345	$	97,078	$	7,652	$	512,946
Watch		—		—		954		—		—		5,964		1		6,919
Substandard		455		263		97		—		—		46		—		861
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

Total	$	117,435	$	104,433	$	155,884	$	6,688	$	25,345	$	103,088	$	7,653	$	520,526

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all instances, loans are placed on

non-accrual

or are charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not collected for loans that are placed on

non-accrual

or charged off are reversed against interest income. The interest on these loans is accounted for on a cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following tables present the Company’s loan portfolio aging analysis:


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
September 30, 2021:
Real estate loans:
One- to four-family	$	962	$	35	$	34	$	1,031	$	116,823	$	117,854	$	—
Multi-family		—		—		—		—		97,211		97,211		—
Commercial		—		—		—		—		163,859		163,859		—
Home equity lines of credit		—		—		—		—		6,274		6,274		—
Construction		—		—		—		—		31,209		31,209		—
Commercial		9		—		—		9		88,953		88,962		—
Consumer		32		—		—		32		7,583		7,615		—

Total	$	1,003	$	35	$	34	$	1,072	$	511,912	$	512,984	$	—


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
June 30, 2021:
Real estate loans:
One- to four-family	$	320	$	52	$	152	$	524	$	116,911	$	117,435	$	118
Multi-family		—		—		—		—		104,433		104,433		—
Commercial		86		—		—		86		155,798		155,884		—
Home equity lines of credit		55		—		—		55		6,633		6,688		—
Construction		—		—		—		—		25,345		25,345		—
Commercial		9		—		—		9		103,079		103,088		—
Consumer		6		—		—		6		7,647		7,653		—

Total	$	476	$	52	$	152	$	680	$	519,846	$	520,526	$	118

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC

310-10-35-16),

when based on current information and events, it is probable the Association will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a

case-by-case

basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a

loan-by-loan

basis by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significant restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlements with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring. Included in certain loan categories in the impaired loans are $1.1 million in troubled debt restructurings that were classified as impaired.

The following tables present impaired loans:


							Three Months Ended September 30, 2021
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
September 30, 2021:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,086	$	1,086	$	—	$	1,088	$	5	$	4
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		43		43		—		44		1		1
Consumer		—		—		—		—		—		—
Loans with a specific allowance
Real estate loans:
One- to four-family		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total:
Real estate loans:
One- to four-family		1,086		1,086		—		1,088		5		4
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		43		43		—		44		1		1
Consumer		—		—		—		—		—		—

	$	1,129	$	1,129	$	—	$	1,132	$	6	$	5


							Year Ended June 30, 2021
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
June 30, 2021:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,252	$	1,252	$	—	$	1,271	$	67	$	50
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		46		46		—		265		19		23
Consumer		—		—		—		—		—		—
Loans with a specific allowance
Real estate loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total:
Real estate loans:
One- to four-family
Multi-family	$	1,252	$	1,252	$	—	$	1,271	$	67	$	50
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		46		46		—		265		19		23
		—		—		—		—		—		—

	$	1,298	$	1,298	$	—	$	1,536	$	86	$	73


							Three Months Ended September 30, 2020
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
September 30, 2020:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,277	$	1,277	$	—	$	1,283	$	19	$	17
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		55		55		—		57		—		—
Consumer		4		4		—		5		—		—
Loans with a specific allowance
Real estate loans:
One- to four-family		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total:
Real estate loans:
One- to four-family		1,277		1,277		—		1,283		19		17
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		55		55		—		57		—		—
Consumer		4		4		—		5		—		—

	$	1,336	$	1,336	$	—	$	1,345	$	19	$	17

Interest income recognized on impaired loans includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on

non-accruing

impaired loans for which the ultimate collectability of principal is not uncertain.

The following table presents the Company’s nonaccrual loans at September 30, 2021 and June 30, 2021:


	September 30, 2021		June 30, 2021
Mortgages on real estate:
One- to four-family	$	34	$	34
Multi-family		—		—
Commercial		—		—
Home equity lines of credit		—		—
Construction loans		—		—
Commercial business loans		—		—
Consumer loans		—		—

Total	$	34	$	34

At September 30, 2021 and June 30, 2021, the Company had a number of loans that were modified in troubled debt restructurings (TDR’s) and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

The following table presents the recorded balance, at original cost, of troubled debt restructurings, as of September 30, 2021 and June 30, 2021. All TDRs were performing according to the terms of the restructuring as of September 30, 2021, and with the exception of a single

one-

to four-family residential loan for $118,000, all were performing according to the terms of restructuring as of June 30, 2021. All loans listed as of September 30, 2021 and June 30, 2021 were accruing.


	September 30, 2021		June 30, 2021
Real estate loans
One- to four-family	$	1,052	$	1,218
Multi-family		—		—
Commercial		—		—
Home equity lines of credit		—		—

Total real estate loans		1,052		1,218

Construction loans		—		—
Commercial business loans		43		46
Consumer loans		—		—

Total	$	1,095	$	1,264

Modifications

During the three month period ended September 30, 2021,

one

prior modified TDR was modified a second time to reamortize for full payment by original maturity.

During the year ended June 30, 2021, no loans were modified.

During the three month period ended September 30, 2020, no loans were modified.

COVID-19

Modifications

Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on March 27, 2020, certain

COVID-19

loan modifications are not designated as TDRs. The CARES Act allows the Company to presume a loan modification is not a TDR if it is (1) related to

COVID-19;

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the National Emergency or (b) December 31, 2020. At September 30, 2021, we had outstanding a total of 122 loans with current balances of $66.7 million that received

COVID-19

modifications at some point. These modifications allowed borrowers to pay interest only for up to six months. As of September 30, 2021, 118 of these loans totaling $64.2 million have returned to principal and interest payments, leaving 4 loans for $2.5 million still under temporary modifications.

TDRs with Defaults

The Company had no TDRs in default and no restructured loans in foreclosure as of September 30, 2021. The Company had one TDR, a

one-

to four-family residential loans for $118,000 that was in default as of June 30, 2021, and was restructured in prior years. No restructured loans were in foreclosure at June 30, 2021. The Company defines a default as any loan that becomes 90 days or more past due.

Specific loss allowances are included in the calculation of estimated future loss ratios, which are applied to the various loan portfolios for purposes of estimating future losses.

Management considers the level of defaults within the various portfolios, as well as the current adverse economic environment and negative outlook in the real estate and collateral markets when evaluating qualitative adjustments used to determine the adequacy of the allowance for loan losses. We believe the qualitative adjustments more accurately reflect collateral values in light of the sales and economic conditions that we have recently observed.

We may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or

in-substance

repossession. As of September 30, 2021, we did not have any foreclosed residential real estate properties as a result of obtaining physical possession. As of September 30, 2021, we had residential mortgage loans and home equity loans with a carrying value of $34,000 collateralized by residential real estate property for which formal foreclosure proceedings were in process.