Loans

12 Months Ended

Jun. 30, 2023

Loans

Loans

Note 6 – Loans

Major classifications of loans, net of deferred loan fees (costs), at June 30, 2023 and 2022 are summarized as follows:

	June 30,				June 30,
	2023				2022
(Dollars in thousands)	Amount		Percent		Amount		Percent
Residential real estate:
1 - 4 family	$	135,046	28.08	%	$	147,143	30.72	%
Home equity and HELOCs		32,684	6.79			32,590	6.80
Construction -residential		9,113	1.90			14,778	3.09
Commercial real estate:
1 - 4 family investor		98,160	20.41			96,508	20.15
Multi-family (five or more)		15,281	3.18			13,015	2.72
Commercial non-residential		157,555	32.77			158,294	33.05
Construction and land		15,584	3.24			4,942	1.03
Commercial		15,433	3.21			9,411	1.97
Consumer loans		2,000	0.42			2,239	0.47
Total Loans		480,856	100.00	%		478,920	100.00	%
Allowance for loan losses		(3,313)				(3,409)
Net Loans	$	477,543			$	475,511

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 $12.5 million and $14.4 million at, June 30, 2023 and 2022,  respectively. The Bank retained the related servicing rights for the loans that were sold and receives a 25 basis point servicing fee from the purchasers of the loans.  Custodial escrow balances maintained in connection with the foregoing loan servicing are included in advances from borrowers for taxes and insurance.

Commercial non-residential loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. As of June 30, 2023 and 2022, the Company had one shared national credit loan commitment for $12.5 million with no balance outstanding and $9.2 million outstanding, respectively, that is a purchased participation classified as pass rated and all payments are current and the loan is performing in accordance with its contractual terms.  The Company’s accounting policies for shared national credits, including our charge off and reserve policy, are consistent with the significant accounting policies disclosed in our financial statements for the Company’s total loan portfolio.  Shared national credits are subject to the same underwriting guidelines as loans originated by the Company and are subject to annual reviews where the risk rating of the loan is

evaluated.  Additionally, the Company obtains quarterly financial information and performs a financial analysis on a regular basis to ensure that the borrower can comply with the financial terms of the loan.  The information used in the analysis is provided by the borrower through the agent bank.

Allowance for Loan Losses. The following tables set forth the allocation of the Bank’s allowance for loan losses by loan category 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. The Company considers the allowance for loan losses of $3.3 million and $3.4 million adequate to cover loan losses inherent in the loan portfolio at June 30, 2023 and 2022, 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, 2023 and 2022, respectively:

June 30, 2023	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		Total
Allowance for credit losses:
Beginning balance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409
Charge-offs		(79)		—		—		—		—		—		—		—		(32)		(111)
Recoveries		—		—		—		—		—		—		—		—		15		15
Provision		59		—		(172)		42		(21)		(31)		115		(18)		26		—
Ending Balance	$	486	$	113	$	214	$	569	$	89	$	1,420	$	281	$	82	$	59	$	3,313
Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		486		113		214		569		89		1,420		281		82		59		3,313
Total allowance	$	486	$	113	$	214	$	569	$	89	$	1,420	$	281	$	82	$	59	$	3,313
Loans receivable ending balance:
Individually evaluated for impairment	$	1,209	$	182	$	—	$	832	$	251	$	778	$	—	$	—	$	—	$	3,252
Collectively evaluated for impairment		78,237		19,689		9,113		84,891		14,781		142,098		15,584		14,976		643		380,012
Acquired non-credit impaired loans (1)		55,528		12,813		—		12,437		249		14,679		—		457		1,357		97,520
Acquired credit impaired loans (2)		72		—		—		—		—		—		—		—		—		72
Total portfolio	$	135,046	$	32,684	$	9,113	$	98,160	$	15,281	$	157,555	$	15,584	$	15,433	$	2,000	$	480,856

(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, 2022	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		Total
Allowance for credit losses:
Beginning balance	$	709	$	133	$	487	$	843	$	159	$	854	$	362	$	51	$	15	$	3,613
Charge-offs		(154)		—		—		(55)		—		—		—		—		(29)		(238)
Recoveries		—		8		—		42		—		—		—		—		4		54
Provision		(49)		(28)		(101)		(303)		(49)		597		(196)		49		60		(20)
Ending Balance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409
Allowance ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		506		113		386		527		110		1,451		166		100		50		3,409
Total allowance	$	506	$	113	$	386	$	527	$	110	$	1,451	$	166	$	100	$	50	$	3,409
Loans receivable ending balance:
Individually evaluated for impairment	$	3,336	$	275	$	—	$	173	$	291	$	1,213	$	—	$	—	$	—	$	5,288
Collectively evaluated for impairment		78,478		15,679		14,778		81,834		12,471		138,812		4,942		8,626		531		356,151
Acquired non-credit impaired loans (1)		65,196		16,613		—		14,501		253		18,269		—		785		1,708		117,325
Acquired credit impaired loans (2)		133		23		—		—		—		—		—		—		—		156
Total portfolio	$	147,143	$	32,590	$	14,778	$	96,508	$	13,015	$	158,294	$	4,942	$	9,411	$	2,239	$	478,920

(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, 2023, 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.  Specifically, we experienced significant growth in our commercial construction and land loan portfolio during the year ended June 30, 2023 and a corresponding increase in the provision for loan losses for this portfolio.  The overall decrease in the allowance during the year ended June 30, 2023 can primarily be attributed to improved credit quality metrics, including continued low levels of net charge-offs and a decrease in non-performing assets.

During the year ended June 30, 2022, 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 decrease in the allowance during the year ended June 30, 2022 can primarily be attributed to stable credit quality metrics, including continued low levels of net charge-offs and non-performing assets, as well as a reduction of the adjustments to qualitative factors related to the COVID-19 pandemic.

Credit Quality Information

The following tables represent credit exposures by internally assigned grades for the year ended June 30, 2023 and 2022, 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, 2023 and 2022:

June 30, 2023
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	96,097	$	15,030	$	156,777	$	15,584	$	15,433	$	298,921
Special Mention		1,231		—		—		—		—		1,231
Substandard		832		251		778		—		—		1,861
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	98,160	$	15,281	$	157,555	$	15,584	$	15,433	$	302,013

June 30, 2022
	Commercial Real Estate
	1 - 4 family						Construction
	investor		Multi-family		Non-residential		and land		Commercial		Total
Pass	$	94,929	$	12,724	$	157,081	$	4,942	$	9,411	$	279,087
Special Mention		1,473		—		300		—		—		1,773
Substandard		106		291		913		—		—		1,310
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Ending Balance	$	96,508	$	13,015	$	158,294	$	4,942	$	9,411	$	282,170

The following tables set forth the amounts of the portfolio of classified asset categories for the residential and consumer loan portfolios at June 30, 2023 and 2022:

Residential Real Estate and Consumer Loans
Credit Risk Internally Assigned
(Dollars in thousands)
June 30, 2023
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	132,956	$	32,684	$	9,113	$	1,918	$	176,671
Non-performing		2,090		—		—		82		2,172
	$	135,046	$	32,684	$	9,113	$	2,000	$	178,843

June 30, 2022
	Residential Real Estate
			Home equity &
	1 - 4 family		HELOCs		Construction		Consumer		Total
Performing	$	142,362	$	32,249	$	14,778	$	2,122	$	191,511
Non-performing		4,781		341		—		117		5,239
	$	147,143	$	32,590	$	14,778	$	2,239	$	196,750

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, 2023 and 2022:

	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2023
															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	$	290	$	457	$	567	$	1,314	$	72	$	133,660	$	135,046	$	—	$	2,090
Home equity and HELOCs		—		—		—		—		—		32,684		32,684		—		—
Construction - residential		—		—		—		—		—		9,113		9,113		—		—
Commercial real estate:
1 - 4 family investor		—		752		—		752		—		97,408		98,160		—		832
Multi-family		251		—		—		251		—		15,030		15,281		—		251
Commercial non-residential		—		322		778		1,100		—		156,455		157,555		—		778
Construction and land		—		—		—		—		—		15,584		15,584		—		—
Commercial		—		—		—		—		—		15,433		15,433		—		—
Consumer		—		13		—		13		—		1,987		2,000		—		82
Total	$	541	$	1,544	$	1,345	$	3,430	$	72	$	477,354	$	480,856	$	—	$	4,033

	Aged Analysis of Past Due and Non-accrual Loans
	As of June 30, 2022
															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	$	1,528	$	622	$	2,392	$	4,542	$	133	$	142,468	$	147,143	$	—	$	4,781
Home equity and HELOCs		19		—		183		202		23		32,365		32,590		—		341
Construction - residential		—		—		—		—		—		14,778		14,778		—		—
Commercial real estate:
1 - 4 family investor		—		—		—		—		—		96,508		96,508		—		106
Multi-family		—		—		—		—		—		13,015		13,015		—		291
Commercial non-residential		275		494		418		1,187		—		157,107		158,294		—		875
Construction and land		—		—		—		—		—		4,942		4,942		—		—
Commercial		—		—		—		—		—		9,411		9,411		—		—
Consumer		27		—		—		27		—		2,212		2,239		—		117
Total	$	1,849	$	1,116	$	2,993	$	5,958	$	156	$	472,806	$	478,920	$	—	$	6,511

Interest income on non-accrual loans would have increased by approximately $192 thousand, and $275 thousand during the years ended June 30, 2023 and 2022, 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, 2023
			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	$	1,209	$	1,302	$	—	$	1,780	$	—
Home equity and HELOCs		182		182		—		325		20
Construction residential		—		—		—		—		—
1 - 4 family investor commercial real estate		832		850		—		179		1
Multi-family		251		283		—		277		—
Commercial non-residential		778		783		—		1,042		19
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—
With an allowance recorded:
1 - 4 family residential real estate	$	—	$	—	$	—	$	—	$	—
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	$	1,209	$	1,302	$	—	$	1,780	$	—
Home equity and HELOCs		182		182		—		325		20
Construction residential		—		—		—		—		—
1 - 4 family investor commercial real estate		832		850		—		179		1
Multi-family		251		283		—		277		—
Commercial non-residential		778		783		—		1,042		19
Construction and land		—		—		—		—		—
Commercial		—		—		—		—		—
Consumer		—		—		—		—		—

The impaired loans table above includes accruing TDRs in the amount of $182 thousand that are performing in accordance with their modified terms. The Company recognized $38 thousand of interest income on accruing TDRs during the year ended June 30, 2023. The table above does not include $72 thousand of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

June 30, 2022
			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	$	3,336	$	3,582	$	—	$	2,552	$	—
Home equity and HELOCs		275		277		—		462		18
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		173		185		—		303		4
Multi-family		291		308		—		384		—
Commercial non-residential		1,213		1,265		—		1,071		24
Construction and land		—		—		—		—		—
Commercial		—		—		—		2		—
Consumer		—		—		—		—		—
With an allowance recorded:
1-4 Family residential real estate	$	—	$	—	$	—	$	—	$	—
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	$	3,336	$	3,582	$	—	$	2,552	$	—
Home equity and HELOCs		275		277		—		462		18
Construction Residential		—		—		—		—		—
1 - 4 Family investor commercial real estate		173		185		—		303		4
Multi-family		291		308		—		384		—
Commercial non-residential		1,213		1,265		—		1,071		24
Construction and land		—		—		—		—		—
Commercial		—		—		—		2		—
Consumer		—		—		—		—		—

The impaired loans table above includes accruing TDRs in the amount of $593 thousand that are performing in accordance with their modified terms. The Company recognized $45 thousand of interest income on accruing TDRs during the year ended June 30, 2022. The table above does not include $156 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, 2023 and 2022, had impaired loans been current according to their original terms, amounted to $104 thousand and $183 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.

For the years ended June 30, 2023 and 2022, 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, 2023 and 2022.