Major classifications of loans at June 30, 2021 and June 30, 2020 are summarized as follows:

As of June 30, 2021 and 2020, the Bank had $1.5 million and $2.4 million of outstanding Paycheck Protection Program (PPP) loans to 44 and 56 new and existing customers, respectively, that are included in commercial loans in the above table and are guaranteed by the Small Business Administration and mature in two years. During the year ended June 30, 2020, the Bank also modified approximately $49.8 million of existing loans under the 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide its customers with monetary relief. Generally, these modifications included the deferral of principal and interest payments for a period of three months, although interest income continued to accrue. The three-month deferral period has ended on a portion of the loans on deferral and the Bank received payments of principal and interest on a portion of the loans on deferral and, as of June 30, 2021, $366 thousand of loans remain on deferral under the CARES Act.

Mortgage loans serviced for others are not included in the accompanying Consolidated Statements of Financial Condition. The total amount of loans serviced for the benefit of others was approximately $18.6 million and $26.6 million at, June 30, 2021 and 2020, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing are included in advances from borrowers for taxes and insurance.

Allowance for Loan Losses. The following tables set forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, net, at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio. The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated substandard or worse that are 90 days past due.

The provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. During the year ended June 30, 2021, management determined it was appropriate to further breakout loan classifications to include one-to four-family investor loans, as well as the related allowance for loan losses, within the commercial real estate category. The 2020 information is presented to be comparable with the 2021 presentation. The Company considers the allowance for loan losses of $3.6 million and $3.5 million adequate to cover loan losses inherent in the loan portfolio at June 30, 2021 and 2020, respectively.

The following table presents by portfolio segment, the changes in the allowance for loan losses and the recorded investment in loans for the years ended June 30, 2021 and 2020, respectively:

(1)	Acquired non-credit impaired loans are evaluated collectively, excluding loans that have subsequently moved to non-accrual status which are individually evaluated for impairment.

(2)	Acquired credit impaired loans are evaluated on an individual basis.


June 30, 2020	Residential real estate:						Commercial real estate:
			Home Equity		Construction-		1 - 4 family		Multi-family		Commercial		Construction
(Dollar amounts in thousands)	1 - 4 family		and HELOCs		residential		investor		(five or more)		non-residential		and Land		Commercial		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	691	$	122	$	321	$	810	$	71	$	708	$	121	$	95	$	3	$	267	$	3,209
Charge-offs		—		(6)		—		(260)		—		(35)		—		(3)		(12)		—		(316)
Recoveries		—		—		—		—		—		—		—		—		—		—		—
Provision		(9)		50		205		251		52		54		275		(9)		24		(267)		626
Ending Balance	$	682	$	166	$	526	$	801	$	123	$	727	$	396	$	83	$	15	$	—	$	3,519

Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		682		166		526		801		123		727		396		83		15		—		3,519
Total allowance	$	682	$	166	$	526	$	801	$	123	$	727	$	396	$	83	$	15	$	—	$	3,519

Loans receivable ending balance:
Individually evaluated for impairment	$	478	$	628	$	—	$	495	$	185	$	585	$	—	$	—	$	—	$	—	$	2,371
Collectively evaluated for impairment		97,541		15,170		9,218		92,021		9,267		45,214		6,690		4,150		713		—		279,984
Acquired non-credit impaired loans ⁽¹⁾		132,637		30,699		6,581		22,979		5,512		30,908		—		2,288		3,187		—		234,791
Acquired credit impaired loans ⁽²⁾		299		22		—		—		—		—		—		—		—		—		321
Total portfolio	$	230,955	$	46,519	$	15,799	$	115,495	$	14,964	$	76,707	$	6,690	$	6,438	$	3,900	$	—	$	517,467

(1)	Acquired non-credit impaired loans are evaluated collectively, excluding loans that have subsequently moved to non-accrual status which are individually evaluated for impairment.

(2)	Acquired credit impaired loans are evaluated on an individual basis.

During the year ended June 30, 2021, the changes in the provision for loan losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each portfolio of loans collectively evaluated for impairment. The overall increase in the allowance during the year ended June 30, 2021 can primarily be attributed to an increase in non-accrual and delinquent loans and the corresponding qualitative adjustment.

During the year ended June 30, 2020, the changes in the provision for loan losses related to 1-4 family residential real estate, residential real estate construction loans and commercial real estate land loans were primarily due to concerns with the risk profile of these portfolios in the current economic environment as impacted by the COVID-19 pandemic. The increase in reserves due to the COVID-19 pandemic was limited by the Company making enhancements to its credit management function by adding new experienced team members and implementing more robust internal credit measurement and monitoring processes.

Credit Quality Information

The following tables represent credit exposures by internally assigned grades for the year ended June 30, 2021 and 2020, respectively. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

The following tables set forth the amounts of the portfolio of classified asset categories for the commercial loan portfolios at June 30, 2021, and June 30, 2020:


June 30, 2021
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	118,321	$	12,139	$	95,820	$	6,377	$	5,145	$	237,802
Special Mention		2,054		—		356		—		—		2,410
Substandard		352		176		536		—		—		1,064
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	120,727	$	12,315	$	96,712	$	6,377	$	5,145	$	241,276


June 30, 2020
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	113,540	$	13,976	$	75,973	$	6,690	$	6,438	$	216,617
Special Mention		1,663		803		507		—		—		2,973
Substandard		292		185		227		—		—		704
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	115,495	$	14,964	$	76,707	$	6,690	$	6,438	$	220,294

The following tables set forth the amounts of the portfolio of classified asset categories for the residential and consumer loan portfolios at June 30, 2021 and 2020:


Residential Real Estate and Consumer Loans
Credit Risk Internally Assigned
(Dollars in thousands)
June 30, 2021
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	169,625	$	36,877	$	12,945	$	3,112	$	222,559
Non-performing		3,774		345		—		118		4,237
	$	173,399	$	37,222	$	12,945	$	3,230	$	226,796


June 30, 2020
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	228,894	$	46,045	$	15,799	$	3,785	$	294,523
Non-performing		2,061		474		—		115		2,650
	$	230,955	$	46,519	$	15,799	$	3,900	$	297,173

Loans Acquired with Deteriorated Credit Quality

The outstanding principal and related carrying amount of loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, as of June 30, 2021 and June 30, 2020, are as follows.


(Dollars in thousands)	June 30, 2021		June 30, 2020
Outstanding principal balance	$	247	$	773
Carrying amount		161		321

The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, for the years ended June 30, 2021 and 2020:


(Dollars in thousands)	Accretable Discount
Balance, May 1, 2020	$	57
Accretion		(4)
Balance, June 30, 2020	$	53
Accretion		(40)
Balance, June 30, 2021	$	13

Loan Delinquencies and Non-accrual Loans

Following are tables which include an aging analysis of the recorded investment of past due loans as of June 30, 2021 and 2020.


	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2021
															Recorded		Recorded
									Acquired						Investment		Investment
	30 - 59 Days		60 - 89 Days		90 Days		Total Past		Credit				Total Loans		>90 Days and		Loans on
(Dollar amounts in thousands)	Past Due		Past Due		Or Greater		Due		Impaired		Current		Receivable		Accruing		Non-Accrual
Residential real estate:
1 - 4 family	$	1,658	$	561	$	989	$	3,208	$	138	$	170,053	$	173,399	$	—	$	3,774
Home equity and HELOCs		58		150		80		288		23		36,911		37,222		—		345
Construction - residential		—		—		—		—		—		12,945		12,945		—		—
Commercial real estate:
1 - 4 family investor		81		—		271		352		—		120,375		120,727		—		352
Multi-family		—		344		176		520		—		11,795		12,315		—		176
Commercial non-residential		92		491		—		583		—		96,129		96,712		—		536
Construction and land		—		—		—		—		—		6,377		6,377		—		—
Commercial		—		—		—		—		—		5,145		5,145		—		—
Consumer		64		—		—		64		—		3,166		3,230		—		118
Total	$	1,953	$	1,546	$	1,516	$	5,015	$	161	$	462,896	$	468,072	$	—	$	5,301


	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2020
															Recorded		Recorded
									Acquired						Investment		Investment
	30 - 59 Days		60 - 89 Days		90 Days		Total Past		Credit				Total Loans		>90 Days and		Loans on
(Dollar amounts in thousands)	Past Due		Past Due		Or Greater		Due		Impaired		Current		Receivable		Accruing		Non-Accrual
Residential real estate:
1 - 4 family	$	235	$	1,020	$	1,185	$	2,440	$	299	$	228,216	$	230,955	$	—	$	2,061
Home equity and HELOCs		126		101		181		408		22		46,089		46,519		90		384
Construction - residential		—		—		—		—		—		15,799		15,799		—		—
Commercial real estate:
1 - 4 family investor		—		—		292		292		—		115,203		115,495		—		292
Multi-family		—		465		185		650		—		14,314		14,964		—		185
Commercial non-residential		100		507		—		607		—		76,100		76,707		—		135
Construction and land		—		—		—		—		—		6,690		6,690		—		—
Commercial		—		—		—		—		—		6,438		6,438		—		—
Consumer		3		21		—		24		—		3,876		3,900		—		115
Total	$	464	$	2,114	$	1,843	$	4,421	$	321	$	512,724	$	517,467	$	90	$	3,172

Interest income on non-accrual loans would have increased by approximately $136 thousand, and $91 thousand during the years ended June 30, 2021 and 2020, respectively, if these loans had performed in accordance with their terms.

Impaired Loans

Management considers commercial loans and commercial real estate loans which are 90 days or more past due to be impaired. Larger commercial loans and commercial real estate loans which are 60 days or more past due are selected for impairment testing in accordance with GAAP. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance for loan losses.

The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.


June 30, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
1 - 4 Family residential real estate	$	1,907	$	1,943	$	—	$	1,223	$	23
Home equity and HELOCs		578		587		—		652		20
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		433		477		—		656		20
Multi-family		176		180		—		182		6
Commercial non-residential		892		900		—		882		36
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

With an allowance recorded:
1 - 4 Family	$	—	$	—	$	—	$	—	$	—
Home equity and HELOCs		—		—		—		—		—
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		—		—		—		—		—
Multi-family		—		—		—		—		—
Commercial non-residential		—		—		—		—		—
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

Total:
1 - 4 Family	$	1,907	$	1,943	$	—	$	1,223	$	23
Home equity and HELOCs		578		587		—		652		20
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		433		477		—		656		20
Multi-family		176		180		—		182		6
Commercial non-residential		892		900		—		882		36
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

The impaired loans table above includes accruing TDRs in the amount of $935 thousand that are performing in accordance with their modified terms. The Company recognized $66 thousand of interest income on accruing TDRs during the year ended June 30, 2021. The table above does not include $161 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.


June 30, 2020
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
1-4 Family residential real estate	$	478	$	478	$	—	$	1,080	$	26
Home equity and HELOCs		628		634		—		906		37
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		495		495		—		371		19
Multi-family		185		185		—		139		—
Commercial non-residential		585		620		—		624		38
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

With an allowance recorded:
1-4 Family residential real estate	$	—	$	—	$	—	$	67	$	4
Home equity and HELOCs		—		—		—		—		—
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		—		—		—		—		—
Multi-family		—		—		—		—		—
Commercial non-residential		—		—		—		—		—
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

Total:
1-4 Family residential real estate	$	478	$	478	$	—	$	1,147	$	30
Home equity and HELOCs		628		634		—		906		37
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		495		495		—		371		19
Multi-family		185		185		—		139		—
Commercial non-residential		585		620		—		624		38
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

The impaired loans table above includes accruing TDRs in the amount of $1.4 million that are performing in accordance with their modified terms. The Company recognized $79 thousand of interest income on accruing TDRs during the year ended June 30, 2020. The table above does not include $321 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

Generally, the Company will charge-off the collateral or discounted cash flow deficiency on all impaired loans. Interest income that would have been recorded for the years ended June 30, 2021 and 2020, had impaired loans been current according to their original terms, amounted to $68 thousand and $40 thousand, respectively.

Troubled Debt Restructurings

The Bank determines whether a restructuring of debt constitutes a troubled debt restructuring (“TDR”) in accordance with guidance under FASB ASC Topic 310 Receivables. The Bank considers a loan a TDR when the borrower is experiencing financial difficulty and the Bank grants a concession that they would not otherwise consider but for the borrower’s financial difficulties. A TDR includes a modification of debt terms or assets received in satisfaction of the debt (including a foreclosure or a deed in lieu of foreclosure) or a combination of types. The Bank evaluates selective criteria to determine if a borrower is experiencing financial difficulty, including the

ability of the borrower to obtain funds from sources other than the Bank at market rates. The Bank considers all TDR loans as impaired loans and, generally, they are put on non-accrual status. The Bank will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification reflects prevailing market conditions. The Bank’s policy for returning a loan to accruing status requires the preparation of a well-documented credit evaluation which includes the following:

●

A review of the borrower’s current financial condition in which the borrower must demonstrate sufficient cash flow to support the repayment of all principal and interest including any amounts previously charged-off;

●

An updated appraisal or home valuation which must demonstrate sufficient collateral value to support the debt; and

●

Sustained performance based on the restructured terms for at least six consecutive months.

During the quarter ended June 30, 2020, the Company began providing customer relief programs, such as payment deferrals or interest only payments on loans. The Company does not consider a modification to be a TDR if it occurred as a result of the loan forbearance program under the CARES Act. The CARES Act indicates that a loan term modification does not automatically result in TDR status if the modification is made on a good-faith basis in response to COVID-19 to borrowers who were classified as current and not more than 30 days past due as of December 31, 2019, and 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.

As of June 30, 2021 and 2020, there were no loans modified that were identified as a troubled debt restructuring. The Company did not experience any re-defaulted TDRs subsequent to the loan being modified during the years ended June 30, 2021 and 2020.