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Loans Receivable

6 Months Ended

Dec. 31, 2020

4. Loans receivable

The composition of the loan portfolio was as follows:

	December 31,			June 30,
(in thousands)	2020			2020
Residential real estate
One- to four-family	$	222,443		$	222,489
Multi-family		18,991			12,373
Construction		4,055			4,045
Land		1,099			765
Farm		2,561			2,354
Nonresidential real estate		38,043			33,503
Commercial nonmortgage		1,321			2,214
Consumer and other:
Loans on deposits		1,235			1,245
Home equity		7,454			7,645
Automobile		90			67
Unsecured		594			675
		297,886			287,375
Allowance for loan losses		(1,622	)		(1,488	)
	$	296,264		$	285,887

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	671	$	(1	)	$	(23	)	$	–	$	647
Multi-family		184		93			–			–		277
Construction		6		--			–			–		6
Land		1		1			–			–		2
Farm		4		1			–			–		5
Nonresidential real estate		405		64			–			–		469
Commercial nonmortgage		3		(1	)		–			–		2
Consumer and other:
Loans on deposits		2		–			–			–		2
Home equity		11		38			(45	)		7		11
Automobile		–		–			–			–		–
Unsecured		1		(3	)		–			3		1
Unallocated		200		–			–			–		200
Totals	$	1,488	$	192		$	(68	)	$	10	$	1,622

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	670	$	--		$	(23	)	$	–	$	647
Multi-family		217		60			–			–		277
Construction		7		(1	)		–			–		6
Land		1		1			–			–		2
Farm		5		–			–			–		5
Nonresidential real estate		418		51			–			–		469
Commercial nonmortgage		4		(2	)		–			–		2
Consumer and other:
Loans on deposits		2		--			–			–		2
Home equity		11		--			–			–		11
Automobile		–		–			–			–		–
Unsecured		1		(1	)		–			1		1
Unallocated		200		–			–			–		200
Totals	$	1,536	$	108		$	(23	)	$	1	$	1,622

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2019:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	685	$	64		$	(65	)	$	–	$	684
Multi-family		200		(28	)		–			–		172
Construction		6		–			–			–		6
Land		1		1			–			–		2
Farm		6		(2	)		–			–		4
Nonresidential real estate		336		25			–			–		361
Commercial nonmortgage		5		(1	)		–			–		4
Consumer and other:
Loans on deposits		3		(1	)		–			–		2
Home equity		14		(3	)		–			–		11
Automobile		–		8			(8	)		–		–
Unsecured		–		1			–			–		1
Unallocated		200		–			–			–		200
Totals	$	1,456	$	64		$	(73	)	$	–	$	1,447

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2019:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	686	$	(2	)	$	–		$	–	$	684
Multi-family		193		(21	)		–			–		172
Construction		6		–			–			–		6
Land		1		1			–			–		2
Farm		6		(2	)		–			–		4
Nonresidential real estate		339		22			–			–		361
Commercial nonmortgage		5		(1	)		–			–		4
Consumer and other:
Loans on deposits		2		–			–			–		2
Home equity		12		(1	)		–			–		11
Automobile		–		8			(8	)		–		–
Unsecured		–		1			–			–		1
Unallocated		200		–			–			–		200
Totals	$	1,450	$	5		$	(8	)	$	–	$	1,447

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 December 31, 2020. The recorded investment in loans excludes accrued interest receivable due to immateriality.

December 31, 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	$	4,040	$	685	$	4,725	$	–	$	–	$	–
Multi-family		658		–		658		–		–		–
Farm		291		–		291		–		–		–
Nonresidential real estate		646		–		646		–		–		–
		5,635		685		6,320		–		–		–

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	217,718	$	647	$	–	$	647
Multi-family						18,333		277		–		277
Construction						4,055		6		–		6
Land						1,099		2		–		2
Farm						2,270		5		–		5
Nonresidential real estate						37,397		469		–		469
Commercial nonmortgage						1,321		2		–		2
Consumer:
Loans on deposits						1,235		2		–		2
Home equity						7,454		11		–		11
Automobile						90		–		–		–
Unsecured						594		1		–		1
Unallocated						–		–		200		200
						291,566		1,422		200		1,622
					$	297,886	$	1,422	$	200	$	1,622

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 six months ended December 31:

(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	$	4,011	$	84	$	84	$	3,922	$	62	$	62
Multi-family		665		12		12		684		17		17
Construction		32		–		–		–		–		–
Farm		300		23		23		309		5		5
Nonresidential real estate		653		7		7		702		14		14
Purchased credit-impaired loans		718		24		24		936		35		35
		6,379		150		150		6,553		133		133
With an allowance recorded:
One- to four-family		–		–		–		–		–		–
	$	6,379	$	150	$	150	$	6,553	$	133	$	133

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended December 31:

(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:
Residential real estate:
One- to four-family	$	3,965	$	39	$	39	$	3,780	$	28	$	28
Multi-family		662		6		6		682		6		6
Construction		32
Farm		292		--		--		309		5		5
Nonresidential real estate		650		3		3		724		7		7
Purchased credit-impaired loans		711		10		10		913		17		17
		6,312		58		58		6,408		63		63
With an allowance recorded:
One- to four-family		–		–		–		–		–		–
	$	6,312	$	58	$	58	$	6,408	$	63	$	63

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 December 31, 2020 and June 30, 2020:

	December 31, 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	$	4,430	$	461	$	4,458	$	1,135
Multifamily		658		–		671		–
Construction		--		–		63		–
Farm		291		–		309		–
Nonresidential real estate and land		646		–		660		–
Commercial and industrial		–		–		4		–
Consumer		67		--		95		–
	$	6,092	$	461	$	6,260	$	1,135

One- to four-family loans in process of foreclosure totaled $790,000 and $694,000 at December 31, 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 December 31, 2020, the Banks had granted deferrals to 101 loans totaling $18.4 million. Of those, five loans totaling $293,000 had not yet completed the initial 3-month deferral period at December 31, 2020. One borrower who owes $859,000 had been granted an additional extension. All other borrowers granted a deferral, composed of 95 loans totaling $17.2 million in principal had resumed regular payments.

At December 31, 2020 and June 30, 2020, the Company had $1.9 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at December 31, 2020, approximately 29.6% were related to the borrower's completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the six months ended December 31, 2020, the Company had two loans, which were associated with a single borrower and were both secured by a single-family residence, restructured as TDRs. The loans were classified as TDRs pursuant to court action under Chapter 7 bankruptcy proceedings without the borrower reaffirming the debt personally, and totaled $144,000 at December 31, 2020, and were current on payments.

During the six months ended December 31, 2019, the Company had two loans restructured as TDRs. One 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. Another single-family residential borrower filed for Chapter 7 bankruptcy protection and did not reaffirm the debt personally, although the Company's collateral position remains intact.

The following table summarizes TDR loan modifications that occurred during the six months ended December 31, 2020 and 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
Six months ended December 31, 2020
Residential real estate:
Chapter 7 bankruptcy	$	144	$	–	$	144

Six months ended December 31, 2019
Residential real estate:
Terms extended	$	682	$	–	$	682
Terms extended and additional funds advanced	$	119	$	–	$	119
Chapter 7 bankruptcy	$	21	$	–	$	21

No TDRs defaulted during the six-month periods ended December 31, 2020 or 2019.

The following table summarizes TDR loan modifications that occurred during the three months ended December 31, 2020 and 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 December 31, 2020
Residential real estate:
Chapter 7 bankruptcy	$	144	$	–	$	144

Three months ended December 31, 2019
Residential real estate:
Terms extended	$	682	$	–	$	682
Chapter 7 bankruptcy	$	21	$	–	$	21

The following table presents the aging of the principal balance outstanding in past due loans as of December 31, 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	$	3,424	$	2,086	$	5,510	$	216,933	$	222,443
Multi-family		–		–		–		18,991		18,991
Construction		378		--		378		3,677		4,055
Land		–		–		–		1,099		1,099
Farm		104		–		104		2,457		2,561
Nonresidential real estate		--		249		249		37,794		38,043
Commercial non-mortgage		–		–		–		1,321		1,321
Consumer and other:
Loans on deposits		–		–		–		1,235		1,235
Home equity		--		--		--		7,454		7,454
Automobile		1		–		1		89		90
Unsecured		9		–		9		585		594
Total	$	3,916	$	2,335	$	6,251	$	291,635	$	297,886

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 December 31, 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	$	215,356	$	690	$	6,397	$	–
Multi-family		18,333		–		658		–
Construction		4,055		–		--		–
Land		1,099		–		–		–
Farm		2,270		–		291		–
Nonresidential real estate		36,001		937		1,105		–
Commercial nonmortgage		1,321		–		–		–
Consumer:
Loans on deposits		1,235		–		–		–
Home equity		7,333		40		81		–
Automobile		90		–		–		–
Unsecured		594		–		--		–
	$	287,687	$	1,667	$	8,532	$	–

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 December 31, 2020 and June 30, 2020, respectively, is as follows:

(in thousands)		December 31, 2020				June 30, 2020
One- to four-family residential real estate		$	646			$	751

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

(in thousands)	Six months ended December 31, 2020			Twelve months ended June 30, 2020
Balance at beginning of period	$	447		$	544
Accretion of income		(29	)		(97	)
Disposals, net of recoveries		–			–
Balance at end of period	$	418		$	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 six-month period ended December 31, 2020. Neither were any allowance for loan losses reversed during those periods.