| Loans receivable | 4. Loans receivable Loans that management has the intent
and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, adjusted
for deferred loan origination costs, net, discounts on purchased loans, and the allowance for loan losses. Interest income is accrued
on the unpaid principal balance unless the collectability of the loan is in doubt. Loan origination fees, net of certain direct origination
costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest income on
one- to four-family residential loans is generally discontinued at the time a loan is 180 days delinquent and on other loans at the time
a loan is 90 days delinquent. All other loans are moved to non-accrual status in accordance with the Company’s policy, typically
90 days after the loan becomes delinquent. Past due status is based on the contractual terms of the loan. In all cases, loans are placed
on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans
past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually
classified impaired loans. All interest accrued but not received
for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis
or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured. The composition of the loan portfolio was as follows:
September 30, June 30,
(in thousands) 2022 2022
Residential real estate
One- to four-family $ 225,314 $ 216,432
Multi-family 23,259 14,252
Construction 3,875 1,363
Land 266 1,062
Farm 1,319 1,338
Nonresidential real estate 30,342 31,441
Commercial and industrial 978 1,006
Consumer and other:
Loans on deposits 833 891
Home equity 7,500 7,670
Automobile 112 117
Unsecured 503 540
294,301 276,112
Allowance for loan losses (1,642 ) (1,529 )
$ 292,659 $ 274,583 The amounts above include net deferred loan costs
of $309,000 and $290,000 as of September 30, 2022 and June 30, 2022, respectively. The allowance for loan losses is a valuation allowance
for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required
using past loss experience, the nature and volume of the portfolio, trends in the level of delinquent and problem loans, adverse situations
that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current and anticipated economic
conditions in the primary lending area. Allocations of the allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general
components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard
or doubtful. The general component covers all loans and is based on historical loss experience adjusted for current factors. In consultation
with regulators, the Company considers a time frame of two years when estimating the appropriate level of allowance for loan losses. This
period may be shortened or extended based on anticipated trends in the banks or in the banks’ markets. The historical loss experience is determined by
portfolio segment and is based on the actual loss history experienced by the Company over the most recent eight quarters. This actual
loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration
of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries;
trends in volume and terms of loans; changes in lending policies, procedures and practices; experience, ability and depth of lending
management and other relevant staff; economic trends and conditions; industry conditions; and effects of changes in credit
concentrations. Our portfolio segments include residential real estate, nonresidential real estate and land, loans on deposits and
consumer and other loans. Risk factors associated with our portfolio segments are as follows: Residential Real Estate Our primary lending activity is the origination
of mortgage loans, which enable a borrower to purchase or refinance existing homes in the Banks’ respective market areas. We further
classify our residential real estate loans as one- to four-family (owner-occupied vs nonowner-occupied), multi-family or construction.
We believe that our first mortgage position on loans secured by residential real estate presents lower risk than our other loans, with
the exception of loans secured by deposits. We offer a mix of adjustable-rate and fixed-rate
mortgage loans with terms up to 30 years for owner-occupied properties. For these properties a borrower may be able to borrow up to 97%
of the value with private mortgage insurance. Alternatively, the borrower may be able to borrow up to 90% of the value through other programs
offered by the bank. We offer loans on one- to four-family rental properties
at a maximum of 80% loan-to-value (“LTV”) ratio and we generally charge a slightly higher interest rate on such loans. We also originate loans to individuals to finance
the construction of residential dwellings for personal use or for use as rental property. We occasionally lend to builders for construction
of speculative or custom residential properties for resale, but on a limited basis. Construction loans are generally less than one year
in length, do not exceed 80% of the appraised value, and provide for the payment of interest only during the construction phase. Funds
are disbursed as progress is made toward completion of the construction. Multi-family and Nonresidential Loans We offer mortgage loans secured by residential
multi-family (five or more units), and nonresidential real estate. Nonresidential real estate loans are comprised generally of commercial
office buildings, churches and properties used for other purposes. Generally, these loans are originated for 25 years or less and do not
exceed 80% of the appraised value. Loans secured by multi-family and commercial real estate generally have larger balances and involve
a greater degree of risk than one- to four-family residential mortgage loans. These loans depend on the borrower’s creditworthiness
and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful
operation and management of the properties. As a result, repayment on such loans may be subject to a greater extent to adverse conditions
in the real estate market or economy than owner-occupied residential loans. Consumer lending Our consumer loans include home equity lines of
credit, loans secured by savings deposits, automobile loans, and unsecured loans. Home equity loans are generally second mortgage loans
subordinate only to first mortgages also held by the bank and do not exceed 80% of the estimated value of the property. We do offer home
equity loans up to 90% of the estimated value to qualified borrowers and these loans carry a premium interest rate. Loans secured by savings
are originated up to 90% of the depositor’s savings account balance and bear interest at a rate higher than the rate paid on the
deposit account. Because the deposit account must be pledged as collateral to secure the loan, the inherent risk of this type of loan
is minimal. Loans secured by automobiles are made directly to consumers (there are no relationships with dealers) and are based on the
value of the vehicle and the borrower’s creditworthiness. Vehicle loans present a higher level of risk because of the natural decline
in the value of the property as well as its mobility. Unsecured loans are based entirely on the borrower’s creditworthiness and
present the highest level of risk to the bank. The Banks choose the most appropriate method for
accounting for impaired loans. For secured loans, which make up the vast majority of the loans in the Banks’ portfolio, this method
involves determining the fair value of the collateral, reduced by estimated selling costs. Where appropriate, the Banks would account
for impaired loans by determining the present value of expected future cash flows discounted at the loan’s effective interest rate. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Although most of our loans are secured by collateral, we rely heavily on the capacity of our borrowers to generate
sufficient cash flow to service their debt. As a result, our loans do not become collateral-dependent until there is deterioration in
the borrower’s cash flow and financial condition, which makes it necessary for us to look to the collateral for our sole source
of repayment. Collateral-dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay
in repayment and are evaluated for impairment under the policy at that time. We utilize updated independent appraisals to determine
fair value for collateral-dependent loans, adjusted for estimated selling costs, in determining our specific reserve. In some situations,
management does not secure an updated independent appraisal. These situations may involve small loan amounts or loans that, in management’s
opinion, have an abnormally low loan-to-value ratio. With respect to the Banks’ investment in
troubled debt restructurings, multi-family and nonresidential loans, and the evaluation of impairment thereof, such loans are nonhomogenous
and, as such, may be deemed to be collateral-dependent when they become more than 90 days delinquent. We obtain updated independent appraisals
in these situations or when we suspect that the previous appraisal may no longer be reflective of the property’s current fair value.
This process varies from loan to loan, borrower to borrower, and also varies based on the nature of the collateral. The following table presents the activity in the
allowance for loan losses by portfolio segment for the three months ended September 30, 2022:
(in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance
Residential real estate:
One-to four-family $ 800 $ 8 $ – $ – $ 808
Multi-family 231 150 – – 381
Construction 4 10 – – 14
Land 3 (3 ) – – –
Farm 5 1 – – 6
Nonresidential real estate 461 (51 ) – – 410
Commercial nonmortgage 2 – – – 2
Consumer and other:
Loans on deposits 1 – – – 1
Home equity 21 (2 ) – – 19
Automobile – – – – –
Unsecured 1 – – – 1
Totals $ 1,529 $ 113 $ – $ – $ 1,642 The following table presents the activity in the
allowance for loan losses by portfolio segment for the three months ended September 30, 2021:
(in thousands) Beginning balance Provision for loan losses Loans Recoveries Ending balance
Residential real estate:
One-to four-family $ 794 $ (31 ) $ (9 ) $ – $ 754
Multi-family 291 (1 ) – – 290
Construction 12 1 – – 13
Land 3 (3 ) – – –
Farm 5 1 – – 6
Nonresidential real estate 494 32 – – 526
Commercial nonmortgage 5 (2 ) – – 3
Consumer and other:
Loans on deposits 2 – – – 2
Home equity 15 1 – – 16
Automobile – – – – –
Unsecured 1 2 (3 ) – –
Totals $ 1,622 $ – $ (12 ) $ – $ 1,610 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, 2022.
The recorded investment in loans excludes accrued interest receivable due to immateriality. September 30, 2022:
(in thousands) Loans individually evaluated Loans Unpaid principal balance Ending allowance attributed to loans
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family $ 3,116 $ 391 $ 3,507 $ –
Multi-family 564 – 564 –
Farm 261 – 261 –
Nonresidential real estate 1,349 – 1,349 –
5,290 391 5,681 –
Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family $ 221,807 $ 808
Multi-family 22,695 381
Construction 3,875 14
Land 266 –
Farm 1,058 6
Nonresidential real estate 28,993 410
Commercial nonmortgage 978 2
Consumer:
Loans on deposits 833 1
Home equity 7,500 19
Automobile 112 –
Unsecured 503 1
288,620 1,642
$ 294,301 $ 1,642
* These
loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition. 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, 2022. June 30, 2022:
(in thousands) Loans Loans Ending Ending
Loans individually evaluated for impairment:
Residential real estate
One- to four-family $ 3,221 $ 400 $ 3,621 $ –
Multi-family 570 – 570 –
Farm 270 – 270 –
Nonresidential real estate 1,073 – 1,073 –
Consumer and other
Home equity 87 – 87 –
Unsecured 5 – 5 –
5,226 400 5,626 –
Loans collectively evaluated for impairment:
Residential real estate
One- to four-family $ 212,811 $ 800
Multi-family 13,682 231
Construction 1,363 4
Land 1,062 3
Farm 1,068 5
Nonresidential real estate 30,368 461
Commercial and industrial 1,006 2
Consumer and other
Loans on deposits 891 1
Home equity 7,583 21
Automobile 117 –
Unsecured 535 1
270,486 1,529
$ 276,112 $ 1,529
* These loans were evaluated at acquisition date at their estimated
fair value and there has been no subsequent deterioration since acquisition. 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 Cash Basis Income Recognized Average Recorded Investment Interest Cash Basis Income Recognized
2022 2021
With no related allowance recorded:
Residential real estate:
One- to four-family $ 3,167 $ 24 $ 24 $ 3,642 $ 36 $ 36
Multi-family 567 5 5 617 5 5
Farm 266 – – 273 – –
Nonresidential real estate 1,211 2 2 1,358 16 16
Consumer and other 47 1 1 21 – –
Purchased credit-impaired loans 396 6 6 527 7 7
$ 5,654 $ 38 $ 38 $ 6,438 $ 64 $ 64 There were no impaired loans with an allowance
recorded at September 30, 2022. 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, 2022, and June 30, 2022:
September 30, June 30,
(in thousands) Nonaccrual Loans Past Due Over Nonaccrual Loans
Residential real estate:
One- to four-family residential real estate $ 3,003 $ 308 $ 3,528 $ 287
Multifamily 564 – 570 –
Farm 261 – 270 –
Nonresidential real estate and land 1,111 – 1,073 –
Commercial and industrial – – -- 1
Consumer – 28 90 –
$ 4,939 $ 336 $ 5,531 $ 288 One- to four-family loans in process of foreclosure
totaled $319,000 and $489,000 at September 30, 2022 and June 30, 2022, 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.” In December 2020, Congress amended the CARES Act
through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including
extending the TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the 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. In response to the COVID-19 pandemic and the widespread economic downturn
that immediately resulted, the Company adopted a loan forbearance plan in which then-current affected borrowers could request deferral
of their loan payments for a period of three months. A total of $815,000 in loans were accepted into the plan for the twelve months ended
June 30, 2021. At June 30, 2021 all of those loans had reached the end of their three-month deferral data period and returned to regular
payment status. At September 30, 2022 and June 30, 2022, the Company
had $1.3 million and $1.4 million of loans classified as TDRs, respectively. Of the TDRs at September 30, 2022, approximately 16.4% 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, 2022,
and 2021 the Company added no loans restructured as TDRs. No TDRs defaulted during the three-month periods ended September 30, 2022, or
2021. The following table presents the aging of the
principal balance outstanding in past due loans as of September 30, 2022, by class of loans:
(in thousands) 30-89 Days 90 Days or Total Past Loans Not Total
Residential real estate:
One-to four-family $ 4,148 $ 1,282 $ 5,430 $ 219,884 $ 225,314
Multi-family – – – 23,259 23,259
Construction 638 – 638 3,237 3,875
Land – – – 266 266
Farm – – – 1,319 1,319
Nonresidential real estate – – – 30,342 30,342
Commercial and industrial 699 – 699 279 978
Consumer and other:
Loans on deposits – – – 833 833
Home equity 144 – 144 7,356 7,500
Automobile – – – 112 112
Unsecured 2 28 30 473 503
Total $ 5,631 $ 1,310 $ 6,941 $ 287,360 $ 294,301 The following tables present the aging of the
principal balance outstanding in past due loans as of June 30, 2022, by class of loans: June 30, 2022:
(in thousands) 30-89 Days Greater Total Loans Not Total
Residential real estate
One- to four-family $ 2,662 $ 1,326 $ 3,988 $ 212,444 $ 216,432
Multi-family – – – 14,252 14,252
Construction 5 – 5 1,358 1,363
Land – – – 1,062 1,062
Farm – – – 1,338 1,338
Nonresidential real estate – – – 31,441 31,441
Commercial and industrial 72 1 73 933 1,006
Consumer and other
Loans on deposits – – – 891 891
Home equity 188 71 259 7,411 7,670
Automobile – – – 117 117
Unsecured – – – 540 540
$ 2,927 $ 1,398 $ 4,325 $ 271,787 $ 276,112 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. Substandard. Doubtful. 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, 2022, and based on the most recent analysis performed, the risk category of loans by class of loans is
as follows:
(in thousands) Pass Special Substandard Doubtful
Residential real estate:
One- to four-family $ 219,621 $ 188 $ 5,505 $ –
Multi-family 22,695 – 564 –
Construction 3,875 – – –
Land 266 – – –
Farm 1,058 – 261 –
Nonresidential real estate 28,532 699 1,111 –
Commercial nonmortgage 978 – – –
Consumer:
Loans on deposits 833 – – –
Home equity 7,466 – 34 –
Automobile 112 – – –
Unsecured 498 – 5 –
$ 285,935 $ 887 $ 7,479 $ – At June 30, 2022, the risk category of loans
by class of loans was as follows:
(in thousands) Pass Special Substandard Doubtful
Residential real estate:
One- to four-family $ 210,830 $ 194 $ 5,408 $ –
Multi-family 13,682 – 570 –
Construction 1,363 – – –
Land 1,062 – – –
Farm 1,068 – 270 –
Nonresidential real estate 29,666 702 1,073 –
Commercial nonmortgage 1,006 – – –
Consumer:
Loans on deposits 891 – – –
Home equity 7,548 – 122 –
Automobile 117 – – –
Unsecured 535 – 5 –
$ 267,768 $ 896 $ 7,448 $ – 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 $88,000 and $88,000 at September 30, 2022 and June 30, 2022, respectively, is as follows:
(in thousands) September 30, June 30,
One- to four-family residential real estate $ 391 $ 400 Accretable yield, or income expected to be collected,
is as follows:
(in thousands) Three months Twelve months
Balance at beginning of period $ 339 $ 390
Accretion of income (12 ) (51 )
Balance at end of period $ 327 $ 339 For those purchased loans disclosed above, the
Company made no increase in allowance for loan losses for the year ended June 30, 2022, nor for the three-month period ended September
30, 2022. Neither were any allowance for loan losses reversed during those periods. |
