
	Three Months Ended September 30, 2022 (Continued)
	Construction			Commercial			Consumer			Total
Allowance for credit losses:
Balance, beginning of period (prior to adoption of ASU 2016-13)	$	489		$	2,025		$	80		$	7,052
Impact of adopting ASU 2016-13		192			(818	)		13			47
Provision charged to expense		(132	)		(117	)		—			(67	)
Losses charged off		—			(4	)		(12	)		(16	)
Recoveries		—			4			2			7

Balance, end of period	$	549		$	1,090		$	83		$	7,023

Loans:
Ending balance	$	34,314		$	77,103		$	9,581		$	550,905


	Year Ended June 30, 2022
	Real Estate Loans
	One- to Four-Family			Multi-Family			Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of year	$	967		$	1,674		$	1,831	$	67
Provision charged to expense		100			(299	)		154		3
Losses charged off		(40	)		—			—		—
Recoveries		1			—			—		—

Balance, end of year	$	1,028		$	1,375		$	1,985	$	70

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

Ending balance: collectively evaluated for impairment	$	1,028		$	1,375		$	1,985	$	70

Loans:
Ending balance	$	132,474		$	88,247		$	167,375	$	6,987

Ending balance: individually evaluated for impairment	$	1,350		$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	131,124		$	88,247		$	167,375	$	6,987


	Year Ended June 30, 2022 (Continued)
	Construction		Commercial		Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	258	$	1,740	$	62		$	6,599
Provision charged to expense		231		265		38			492
Losses charged off		—		—		(27	)		(67	)
Recoveries		—		20		7			28

Balance, end of year	$	489	$	2,025	$	80		$	7,052

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

Ending balance: collectively evaluated for impairment	$	489	$	2,025	$	80		$	7,052

Loans:
Ending balance	$	41,254	$	80,418	$	8,981		$	525,736

Ending balance: individually evaluated for impairment	$	—	$	35	$	—		$	1,385

Ending balance: collectively evaluated for impairment	$	41,254	$	80,383	$	8,981		$	524,351


	Three Months Ended September 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	$	967	$	1,674		$	1,831	$	67
Provision charged to expense		6		(112	)		85		(4	)
Losses charged off		—		—			—		—
Recoveries		1		—			—		—

Balance, end of year	$	974	$	1,562		$	1,916	$	63

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

Ending balance: collectively evaluated for impairment	$	974	$	1,562		$	1,916	$	63

Loans:	$	117,854	$	97,211		$	163,859	$	6,274

Ending balance	$	1,086	$	—		$	—	$	—

Ending balance: individually evaluated for impairment	$	116,768	$	97,211		$	163,859	$	6,274


	Three Months Ended September 30, 2021 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	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 year	$	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

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 credit losses represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining contractual life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies on a sound credit review and approval process. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty.

The Company adopted ASU

2016-13,

effective July 1, 2022, and utilizes the CECL cohort methodology analysis which relies on segmenting the loan portfolio into pools with similar risks, tracking the performance of the pools over time, and using the data to determine pool loss experience.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans and is established through provision for credit losses charged to current earnings. The ACL is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management’s analysis of expected cash flows (for

non-collateral

dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received.

Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Adjustments may be made to historical loss information for differences identified in current loan-specific risk characteristics, such as differences in underwriting standards or terms; lending review systems; experience, ability, or depth of lending management and staff; portfolio growth and mix; delinquency levels and trends; as well as for changes in environmental conditions, such as changes in economic activity or employment, industry economic conditions, property values, or other relevant factors.

The allowance for credit losses on most loans is measured on a collective (pool) basis for loans with similar risk characteristics. The Company estimates the appropriate level of allowance for credit losses for collateral-dependent loans by evaluating them separately.

The specific allowance for collateral-dependent loans that are evaluated separately is measured by determining 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 collateral-dependent 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 segmenting the loan portfolio into pools with similar risks and collecting data to determine pool loss experience. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and troubled debt restructurings, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

Prior to the July 1, 2022, adoption of ASU

2016-13,

the allowance for loan and lease losses (ALLL) represented management’s best estimate of probable losses in the existing loan portfolio at the end of the reporting period. Integral to the methodology for determining the adequacy of the ALLL was portfolio segmentation and impairment measurement. Under the Company’s methodology, loans were first segmented into 1) those comprising large groups of homogeneous loans which are collectively evaluated for impairment and 2) all other loans which are individually evaluated. Those loans in the second category were further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends. Loans were considered impaired if, based on current information and events, it was considered probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement, and was generally based on the fair value, less estimated costs to sell, of the loan’s collateral. If the loan was not collateral-dependent, the measurement of impairment was based on the present value of expected future cash flows discounted at the historical effective interest rate, or the observable market price of the loan. Impairment identified through this evaluation process was a component of the ALLL. If a loan was not considered impaired, it was grouped together with loans having similar characteristics (i.e., the same risk grade), and an ALLL was based upon a quantitative factor (historical average charge-offs) and qualitative factors such as certain management assumptions, changes in lending policies; national, regional, and local economic conditions; changes in mix and volume of portfolio; experience, ability, and depth of lending management and staff; entry to new markets; levels and trends of delinquent, nonaccrual, special mention, and classified loans; concentrations of credit; changes in collateral values; agricultural economic conditions; and regulatory risk.

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 risk rating category and year of origination as of September 30, 2022 and the risk rating category and class of loan as of June 30, 2022 (in thousands):


Risk Rating	2022		2021		2020		2019		2018		Prior Years		Total
One- to Four-Family
Pass	$	44,948	$	31,313	$	20,167	$	6,927	$	9,291	$	28,239	$	140,885
Special Mention		—		—		—		—		—		—		—
Substandard		7		108		62		228		1,127		—		1,532

Total	$	44,955	$	31,421	$	20,229	$	7,155	$	10,418	$	28,239	$	142,417

Multi-Family
Pass	$	31,568	$	11,438	$	15,026	$	9,100	$	3,342	$	28,053	$	98,527
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		251		—		—		251

Total	$	31,568	$	11,438	$	15,026	$	9,351	$	3,342	$	28,053	$	98,778

Commercial Real Estate
Pass	$	53,745	$	31,906	$	34,004	$	6,137	$	20,101	$	33,109	$	179,002
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		895		84		—		1,953		2,932

Total	$	53,745	$	31,906	$	34,899	$	6,221	$	20,101	$	35,062	$	181,934

Home Equity Line of Credit
Pass	$	1,859	$	1,341	$	875	$	812	$	679	$	1,212	$	6,778
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—

Total	$	1,859	$	1,341	$	875	$	812	$	679	$	1,212	$	6,778

Construction
Pass	$	15,648	$	12,595	$	6,071	$	—	$	—	$	—	$	34,314
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—

Total	$	15,648	$	12,595	$	6,071	$	—	$	—	$	—	$	34,314

Commercial Business
Pass	$	16,293	$	20,628	$	12,442	$	9,572	$	1,871	$	9,674	$	70,480
Special Mention		—		—		33		—		—		—		33
Substandard		—		—		1,143		—		4,260		1,187		6,590

Total	$	16,293	$	20,628	$	13,618	$	9,572	$	6,131	$	10,861	$	77,103

Consumer
Pass	$	4,844	$	2,606	$	1,404	$	491	$	173	$	53	$	9,571
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		10		—		10

Total	$	4,844	$	2,606	$	1,404	$	491	$	183	$	53	$	9,581

Total Loans
Pass	$	168,905	$	111,827	$	89,989	$	33,039	$	35,457	$	100,340	$	539,557
Special Mention		—		—		33		—		—		—		33
Substandard		7		108		2,100		563		5,397		3,140		11,315

Total	$	168,912	$	111,935	$	92,122	$	33,602	$	40,854	$	103,480	$	550,905


	Real Estate Loans
	One- to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total
June 30, 2022:
Pass	$	130,950	$	87,993	$	164,424	$	6,987	$	41,254	$	73,226	$	8,970	$	513,804
Watch		—		—		—		—		—		—		—		—
Substandard		1,524		254		2,951		—		—		7,192		11		11,932
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

Total	$	132,474	$	88,247	$	167,375	$	6,987	$	41,254	$	80,418	$	8,981	$	525,736

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, 2022:
Real estate loans:
One- to four-family	$	1,371	$	87	$	1,188	$	2,646	$	139,771	$	142,417	$	62
Multi-family		—		—		—		—		98,778		98,778		—
Commercial		20		—		—		20		181,914		181,934		—
Home equity lines of credit		—		21		—		21		6,757		6,778		—
Construction		—		—		—		—		34,314		34,314		—
Commercial		139		—		—		139		76,964		77,103		—
Consumer		9		17		—		26		9,555		9,581		—

Total	$	1,539	$	125	$	1,188	$	2,852	$	548,053	$	550,905	$	62


	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, 2022:
Real estate loans:
One- to four-family	$	374	$	144	$	1,174	$	1,692	$	130,782	$	132,474	$	47
Multi-family		—		—		—		—		88,247		88,247		—
Commercial		—		—		—		—		167,375		167,375		—
Home equity lines of credit		—		—		—		—		6,987		6,987		—
Construction		—		—		—		—		41,254		41,254		—
Commercial		—		—		—		—		80,418		80,418		—
Consumer		78		21		—		99		8,882		8,981		—

Total	$	452	$	165	$	1,174	$	1,791	$	523,945	$	525,736	$	47

Since the Company adopted ASU

2016-13,

effective July 1, 2022, the allowance for credit losses on most loans is measured on a collective (pool) basis for loans with similar risk characteristics, while some collateral-dependent loans are selected to be evaluated individually. At June 30, 2022, four collateral-dependent

one-

to four-family loans were individually evaluated, but none were determined to require a specific reserve.

In accordance with the impairment accounting guidance (ASC

310-10-35-16),

which was in effect for the Company prior to the adoption of ASU

2016-13

on July 1, 2022, a loan is considered impaired 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 credit 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.

The following tables present impaired loans as of June 30, 2022 and September 30, 2021:


							Year Ended June 30, 2022
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
June 30, 2022:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,350	$	1,350	$	—	$	1,361	$	15	$	13
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		35		35		—		40		4		4
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	$	1,350	$	1,350	$	—	$	1,361	$	15	$	13
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		35		35		—		40		4		4
		—		—		—		—		—		—

	$	1,385	$	1,385	$	—	$	1,401	$	19	$	17


							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

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 amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated for which no allowance was recorded at September 30, 2022 and June 30, 2022:


	September 30, 2022				June 30, 2022
	Nonaccrual with no Allowance for Credit Losses		Nonaccrual		Nonaccrual
Mortgages on real estate:
One- to four-family	$	1,127	$	1,127	$	1,127
Multi-family		—		—		—
Commercial		—		—		—
Home equity lines of credit		—		—		—
Construction loans		—		—		—
Commercial business loans		—		—		—
Consumer loans		—		—		—

Total	$	1,127	$	1,127	$	1,127

At September 30, 2022 and June 30, 2022, the Company had a number of loans that were modified in troubled debt restructurings (TDR’s). 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, 2022 and June 30, 2022. All TDRs were performing according to the terms of the restructuring and were accruing as of September 30, 2022, and as of June 30, 2022.


	September 30, 2022		June 30, 2022
Real estate loans
One- to four-family	$	954	$	962
Multi-family		—		—
Commercial		—		—
Home equity lines of credit		—		—

Total real estate loans		954		962

Construction loans		—		—
Commercial business loans		32		36
Consumer loans		—		—

Total	$	986	$	998

Modifications

During the three-month period ended September 30, 2022, no loans were modified.

During the year ended June 30, 2022, 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, 2022, we had outstanding

a total of 89 loans with current balances of $46.7 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, 2022, 86 of these loans totaling $43.7 million have returned to principal and interest payments. The remaining 3 loans totaling $3.1 million still under temporary modifications are all classified as substandard.

TDRs with Defaults

The Company had no TDRs in default and no restructured loans in foreclosure as of September 30, 2022 or as of June 30, 2022. 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, 2022, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $0. In addition, as of September 30, 2022, we had residential mortgage loans and home equity loans with a carrying value of $739,000 collateralized by residential real estate property for which formal foreclosure proceedings were in process.