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Loans Receivable

3 Months Ended

Sep. 30, 2020

4. Loans receivable

The composition of the loan portfolio was as follows:

	September 30,			June 30,
(in thousands)	2020			2020

Residential real estate
One- to four-family	$	221,659		$	222,489
Multi-family		14,503			12,373
Construction		4,769			4,045
Land		912			765
Farm		2,506			2,354
Nonresidential real estate		35,681			33,503
Commercial nonmortgage		2,608			2,214
Consumer and other:
Loans on deposits		1,280			1,245
Home equity		7,396			7,645
Automobile		74			67
Unsecured		657			675
		292,045			287,375
Allowance for loan losses		(1,536	)		(1,488	)
	$	290,509		$	285,887

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off		Recoveries		Ending balance

Residential real estate:
One- to four-family	$	671	$	(1	)	$	–	$	–	$	670
Multi-family		184		33			–		–		217
Construction		6		1			–		–		7
Land		1		–			–		–		1
Farm		4		1			–		–		5
Nonresidential real estate		405		13			–		–		418
Commercial nonmortgage		3		1			–		–		4
Consumer and other:
Loans on deposits		2		–			–		–		2
Home equity		11		38			45		7		11
Automobile		–		–			–		–		–
Unsecured		1		(2	)		–		2		1
Unallocated		200		–			–		–		200
Totals	$	1,488	$	84		$	45	$	9	$	1,536

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2019:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off		Recoveries		Ending balance

Residential real estate:
One- to four-family	$	685	$	66		$	65	$	–	$	686
Multi-family		200		(7	)		–		–		193
Construction		6		–			–		–		6
Land		1		–			–		–		1
Farm		6		–			–		–		6
Nonresidential real estate		336		3			–		–		339
Commercial nonmortgage		5		–			–		–		5
Consumer and other:
Loans on deposits		3		(1	)		–		–		2
Home equity		14		(2	)		–		–		12
Automobile		–		–			–		–		–
Unsecured		–		–			–		–		–
Unallocated		200		–			–		–		200
Totals	$	1,456	$	59		$	65	$	–	$	1,450

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2020. The recorded investment in loans excludes accrued interest receivable due to immateriality.

September 30, 2020:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,894	$	736	$	4,630	$	–	$	–	$	–
Multi-family		665		–		665		–		–		–
Construction		63		–		63		–		–		–
Farm		292		–		292		–		–		–
Nonresidential real estate		654		–		654		–		–		–
		5,568		736		6,304		–		–		–

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	217,029	$	670	$	–	$	670
Multi-family						13,838		217		–		217
Construction						4,706		7		–		7
Land						912		1		–		1
Farm						2,214		5		–		5
Nonresidential real estate						35,027		418		–		418
Commercial nonmortgage						2,608		4		–		4
Consumer:
Loans on deposits						1,280		2		–		2
Home equity						7,396		11		–		11
Automobile						74		–		–		–
Unsecured						657		1		–		1
Unallocated						–		–		200		200
						285,741		1,336		200		1,536
					$	292,045	$	1,336	$	200	$	1,536

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2020.

June 30, 2020:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,983	$	751	$	4,734	$	–	$	–	$	–
Multi-family		671		–		671		–		–		–
Construction		63		–		63		–		–		–
Farm		309		–		309		–		–		–
Nonresidential real estate		660		–		660		–		–		–
		5,686		751		6,437		–		–		–

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	217,755	$	671	$	–	$	671
Multi-family						11,702		184		–		184
Construction						3,982		6		–		6
Land						765		1		–		1
Farm						2,045		4		–		4
Nonresidential real estate						32,843		405		–		405
Commercial nonmortgage						2,214		3		–		3
Consumer:
Loans on deposits						1,245		2		–		2
Home equity						7,645		11		–		11
Automobile						67		–		–		–
Unsecured						675		1		–		1
Unallocated						–		–		200		200
						280,938		1,288		200		1,488
					$	287,375	$	1,288	$	200	$	1,488

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended September 30:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2020						2019
With no related allowance recorded:
One- to four-family	$	3,938	$	47	$	47	$	3,694	$	34	$	34
Multi-family		668		6		6		683		11		11
Construction		63		–		–		–		–		–
Farm		301		23		23		310		–		–
Nonresidential real estate		657		3		3		705		7		7
Purchased credit-impaired loans		744		14		14		926		18		18
		6,371		93		93		6,318		70		70
With an allowance recorded:
One- to four-family		–		–		–		–		–		–
	$	6,371	$	93	$	93	$	6,318	$	70	$	70

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2020 and June 30, 2020:

	September 30, 2020				June 30, 2020
(in thousands)	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing

Residential real estate:
One- to four-family residential real estate	$	4,343	$	786	$	4,458	$	1,135
Multifamily		665		–		671		–
Construction		63		–		63		–
Farm		292		–		309		–
Nonresidential real estate and land		654		–		660		–
Commercial and industrial		–		–		4		–
Consumer		50		9		95		–
	$	6,067	$	795	$	6,260	$	1,135

One- to four-family loans in process of foreclosure totaled $563,000 and $694,000 at September 30, 2020 and June 30, 2020, respectively.

Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. As of September 30, 2020, the Banks had granted deferrals to 96 loans totaling $18.1 million. At September 30, 2020, 81 loans totaling $16.2 million had completed their approved deferral periods and $16.0 million or 98.6% had returned to normal repayment status. At September 30, 2020, 15 loans totaling $1.9 million remained on their original deferral periods.

At September 30, 2020 and June 30, 2020, the Company had $1.8 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at September 30, 2020, approximately 23.7% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the three months ended September 30, 2020, the Company had no loans restructured as TDRs.

During the three months ended September 30, 2019, the Company had one loan restructured as a TDR. A borrower refinanced a piece of one- to four-family, non-owner occupied, residential property to bring to current amounts owed on other loans with the Bank. Because the borrower’s financial condition had deteriorated, it was unlikely that the borrower could have secured financing elsewhere. The restructured loan is collateralized and cross-collateralized by real estate.

The following table summarizes TDR loan modifications that occurred during the three months ended September 30, 2019, and their performance, by modification type:

(in thousands)

Troubled Debt
Restructurings
Performing to
Modified
Terms

Troubled Debt
Restructurings
Not
Performing to
Modified
Terms

Total
Troubled Debt
Restructurings

Three months ended September 30, 2019

Residential real estate:

Terms extended and additional funds advanced

120

–

120

No TDRs defaulted during the three-month periods ended September 30, 2020 or 2019.

The following table presents the aging of the principal balance outstanding in past due loans as of September 30, 2020, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate:
One-to four-family	$	3,227	$	2,319	$	5,546	$	216,113	$	221,659
Multi-family		–		–		–		14,503		14,503
Construction		36		63		99		4,670		4,769
Land		–		–		–		912		912
Farm		105		–		105		2,401		2,506
Nonresidential real estate		99		251		350		35,331		35,681
Commercial non-mortgage		–		–		–		2,608		2,608
Consumer and other:
Loans on deposits		–		–		–		1,280		1,280
Home equity		306		54		360		7,036		7,396
Automobile		1		–		1		73		74
Unsecured		4		–		4		653		657
Total	$	3,778	$	2,687	$	6,465	$	285,580	$	292,045

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2020, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate:
One-to four-family	$	2,546	$	2,670	$	5,216	$	217,273	$	222,489
Multi-family		–		–		–		12,373		12,373
Construction		192		63		255		3,790		4,045
Land		–		–		–		765		765
Farm		107		309		416		1,938		2,354
Nonresidential real estate		57		253		310		33,193		33,503
Commercial nonmortgage		–		–		–		2,214		2,214
Consumer:
Loans on deposits		–		–		–		1,245		1,245
Home equity		255		90		345		7,300		7,645
Automobile		–		–		–		67		67
Unsecured		–		–		–		675		675
Total	$	3,157	$	3,385	$	6,542	$	280,833	$	287,375

Credit Quality Indicators:

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. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following 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 institution’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 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.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of September 30, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(in thousands)	Pass		Special Mention		Substandard		Doubtful

Residential real estate:
One- to four-family	$	214,552	$	703	$	6,404	$	–
Multi-family		13,838		–		665		–
Construction		4,706		–		63		–
Land		912		–		–		–
Farm		2,214		–		292		–
Nonresidential real estate		33,713		943		1,025		–
Commercial nonmortgage		2,608		–		–		–
Consumer:
Loans on deposits		1,280		–		–		–
Home equity		7,294		37		65		–
Automobile		74		–		–		–
Unsecured		652		–		5		–
	$	281,843	$	1,683	$	8,519	$	–

At June 30, 2020, the risk category of loans by class of loans was as follows:

(in thousands)	Pass		Special Mention		Substandard		Doubtful

Residential real estate:
One- to four-family	$	215,010	$	742	$	6,737	$	–
Multi-family		11,702		–		671		–
Construction		3,982		–		63		–
Land		765		–		–		–
Farm		2,045		–		309		–
Nonresidential real estate		31,529		939		1,035		–
Commercial nonmortgage		2,188		–		26		–
Consumer:
Loans on deposits		1,245		–		–		–
Home equity		7,505		39		101		–
Automobile		67		–		–		–
Unsecured		670		–		5		–
	$	276,708	$	1,720	$	8,947	$	–

Purchased Credit Impaired Loans:

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $351,000 and $351,000 at September 30, 2020 and June 30, 2020, respectively, is as follows:

(in thousands)	September 30, 2020		June 30, 2020

One- to four-family residential real estate	$	736	$	751

Accretable yield, or income expected to be collected, is as follows:

(in thousands)	Three months ended September 30, 2020			Twelve months ended June 30, 2020

Balance at beginning of period	$	447		$	544
Accretion of income		(15	)		(97	)
Disposals, net of recoveries		–			–
Balance at end of period	$	432		$	447

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2020, nor for the three-month period ended September 30, 2020. Neither were any allowance for loan losses reversed during those periods.