Loans

6 Months Ended

Dec. 31, 2020

Loans

Loans

Note 3- Loans

A summary of loans by major category follows:

		Unaudited
	December 31, 2020		June 30, 2020
Commercial real estate	$	47,554,811	$	40,776,090
Commercial and industrial (1)		11,017,967		13,039,260
Construction		10,080,584		11,103,198
One-to-four-family residential		43,274,261		41,721,746
Multi-family real estate		11,521,691		9,578,554
Consumer		1,986,429		2,654,509
Total loans		125,435,743		118,873,357
Deferred loan fees		(162,535)		(254,487)
Allowance for loan losses		(2,117,711)		(1,699,977)
Loans, net	$	123,155,497	$	116,918,893

(1) Paycheck protection loans represent $4,534,982 and $6,374,898 of the commercial and industrial loans as of December 31, 2020 and June 30, 2020.

The Bank maintains a collateral pledge agreement with the FHLB covering secured advances whereby the Bank has agreed to retain, free of all other pledges, liens, and encumbrances, commercial and industrial, commercial real estate, and one-to-four family residential loans. The pledged loans are discounted at a factor of 20% to 36% when aggregating the amount of loans required by the pledge agreement. The amount of eligible collateral was $27,490,480 and $31,283,165 as of December 31, 2020 and June 30, 2020, respectively. There was also FHLB stock of $262,200 pledged as of December 31, 2020 and June 30, 2020.

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the

COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program call the Paycheck Protection Program (“PPP”). Although we were not already a qualified SBA lender, we enrolled in the PPP by completing the required documentation.

Commercial and industrial loans include loans originated under the PPP, a specialized low-interest (1%) forgivable loan program funded by the U.S. Treasury Department and administered by the SBA. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and the loan proceeds are used for other qualifying expenses. The Bank receives a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which is offset by a third-party servicing agent fee ranging from 0.25% to 1.0%. As of December 31, 2020, we had originated 137 PPP loans totaling $6.5 million. As of December 31, 2020, $1.9 million of these PPP loans have been forgiven. As of December 31, 2020, we had 80 PPP loans totaling $4,534,982, net of remaining deferred fees of $162,535 outstanding.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and included new funding for the PPP. The Bank has originated $11.5 million in new PPP loans under this new program through the date of this filing.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six months ended December 31, 2020 and 2019, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of December 31, 2020 and June 30, 2020:

		Commercial		Commercial			One-to-Four		MultiFamily
Unaudited	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
December 31, 2020
Allowance for credit losses
Balance at beginning of year	$	274,997	$	1,021,083	$	43,858	$	339,449	$	10,057	$	2,003	$	8,530	$	1,699,977
Charge-offs		—		—				—				—				—
Recoveries		—		—		73,128		—				1,652				74,780
Provisions		386,382		(907,851)		10,610		283,716		52,515		9,226		165,402		—
Balance at September 30, 2020		661,379		113,232		127,596		623,165		62,572		12,881		173,932		1,774,757
Charge-offs		—		—								—		—		—
Recoveries		—		341,388		—		—				1,566		—		342,954
Provisions		280,505		(344,174)		2,444		(47,961)		23,163		(3,893)		89,916		—
Balance at December 31, 2020	$	941,884	$	110,446	$	130,040	$	575,204	$	85,735	$	10,554	$	263,848	$	2,117,711
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		941,884		110,446		130,040		575,204		85,735		10,554		263,848		2,117,711
Balance at end of period	$	941,884	$	110,446	$	130,040	$	575,204	$	85,735	$	10,554	$	263,848	$	2,117,711
Loans
Individually evaluated for impairment	$	230,331	$	—	$	—	$	470,318	$	90,328	$	—	$	—	$	790,977
Collectively evaluated for impairment		47,324,480		11,017,967		10,080,584		42,803,943		11,431,363		1,986,429		—		124,644,766
Balance at end of period	$	47,554,811	$	11,017,967	$	10,080,584	$	43,274,261	$	11,521,691	$	1,986,429	$	—	$	125,435,743

	Commercial		Commercial				One-to-Four		MultiFamily
	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
June 30, 2020
Individually evaluated forimpairment	$	—	$	274,997	$	—	$	82,785	$	—	$	—	$	—	$	1,055,383
Collectively evaluated forimpairment		274,997		48,485		43,858		256,664		10,057		2,003		8,530		644,594
Balance at end of period	$	274,997	$	1,021,083	$	43,858	$	339,449	$	10,057	$	2,003	$	8,530	$	1,699,977
Loans
Individually evaluated forimpairment	$	688,616	$	2,249,492	$	—	$	2,237,419	$	—	$	—	$	—	$	5,175,527
Collectively evaluated forimpairment		40,087,474		10,789,768		11,103,198		39,484,327		9,578,554		2,654,509				113,697,830
Balance at end of period	$	40,776,090	$	13,039,260	$	11,103,198	$	41,721,746	$	9,578,554	$	2,654,509	$	—	$	118,873,357

Unaudited	Commercial		Commercial				One-to-Four		MultiFamily
December 31, 2019	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses
Balance at beginning of period	$	249,631	$	899,618	$	1,643	$	333,660			$	13,255	$	131,153	$	1,628,960
Charge-offs								(43,728)								(43,728)
Recoveries												4,299				4,299
Provisions		(8,121)		(93,422)		940		91,231				(11,781)		21,153		—
Balance at September 30, 2019		241,510		806,196		2,583		381,163		—		5,773		152,306		1,589,531
Charge-offs		—		—				—				—				—
Recoveries		—		—		—		—				1,981				1,981
Provisions		(22,168)		44,886		527		(26,928)		—		(2,172)		5,855		—
Balance at December 31, 2019	$	219,342	$	851,082	$	3,110	$	354,235	$	—	$	5,582	$	158,161	$	1,591,512

Credit Quality Indicators

The Bank 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, collateral adequacy, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial and industrial and commercial real estate loans. This analysis is performed on an ongoing basis as new information is obtained. The Bank uses the following definitions for risk ratings:

Pass – Loans classified as pass represent loans that are evaluated and are performing under the stated terms. Pass rated assets are analyzed by the paying capacity, the current net worth, and the value of the loan collateral of the obligor.

Special Mention/Watch – Loans classified as watch possess potential weaknesses that require management attention but do not yet warrant adverse classification. While the status of a loan put on this list may not technically trigger their classification as substandard or doubtful, it is considered a proactive way to identify potential issues and address them before the situation deteriorates further and does result in a loss for the Bank.

Substandard – Loans classified as substandard are inadequately protected by the current net worth, paying capacity of the obligor, or by the collateral pledged. Substandard loans must have a well-defined weakness or weaknesses that jeopardize the repayment of the debt as originally contracted. They are characterized by the distinct possibility that the Bank will sustain a loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have the weaknesses of those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in this category are allocated a specific reserve based on the estimated discounted cash flows from the loan (or collateral value less cost to sell for collateral dependent loans) or are charged-off if deemed uncollectible.

Based on the most recent analysis performed, the risk category of loans by class of loans as of December 31, 2020 and June 30, 2020, is as follows:

			Special Mention/
Unaudited	Pass		Watch		Substandard		Doubtful
December 31, 2020
Commercial real estate	$	47,324,480	$	230,331	$	—	$	—
Commercial and industrial		6,207,290		4,810,677		—		—
Construction		10,080,584		—		—		—
	$	63,612,354	$	5,041,008	$	—	$	—

			Special Mention/
	Pass		Watch		Substandard		Doubtful
June 30, 2020
Commercial real estate	$	38,795,967	$	1,743,733	$	236,390	$	—
Commercial and industrial		10,789,768		—		2,249,492		—
Construction		11,103,198		—		—		—
	$	60,688,933	$	1,743,733	$	2,485,882	$	—

Residential real estate and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are 90 days or more delinquent or are not accruing interest are considered nonperforming. The following table presents the recorded investments in residential real estate and consumer loans by class based on payment activity as of December 31, 2020 and June 30, 2020:

Unaudited	Performing		Nonperforming
December 31, 2020
One-to-four-family residential	$	43,196,301	$	77,960
Multi-family real estate		11,521,691		—
Consumer		1,986,429		—
	$	56,704,421	$	77,960

	Performing		Nonperforming
June 30, 2020
One-to-four-family residential	$	41,466,679	$	255,067
Multi-family real estate		9,578,554		—
Consumer		2,654,509		—
	$	53,699,742	$	255,067

The following table summarizes the aging of the past due loans by loan class within the portfolio segments as of December 31, 2020 and June 30, 2020:

	Still Accruing
	30-59 Days		60-89 Days		Over 90 Days		Nonaccrual
Unaudited	Past Due		Past Due		Past Due		Balance
December 31, 2020
Commercial real estate	$	674,480	$	27,227	$	—	$	—
Commercial and industrial		—		—		—		—
Construction		—		—		—		—
One-to-four-family residential		932,256		106,531		—		77,960
Multi-family real estate		—		—		—		—
Consumer		—		—		—		—
Total	$	1,606,736	$	133,758	$	—	$	77,960

	Still Accruing
	30-59 Days		60-89 Days		Over 90 Days		Nonaccrual
	Past Due		Past Due		Past Due		Balance
June 30, 2020
Commercial real estate	$	—	$	30,972	$	—	$	—
Commercial and industrial		—		2,249,492		—		—
Construction		—		—		—		—
One-to-four-family residential		—		71,899		—		255,067
Multi-family real estate		—		—		—		—
Consumer		—		—		—		—
Total	$	—	$	2,352,363	$	—	$	255,067

Impaired Loans

A loan is considered impaired when based on current information and events, it is probable that the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

The following table summarizes individually impaired loans by class of loans as of December 31, 2020 and June 30, 2020:

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Unaudited	Investment		Balance (1)		Allowance		Investment		Recognized
December 31, 2020
With no related allowance
recorded
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		230,331		248,399		—		231,885		3,601
One-to-four-family residential		470,218		600,225		—		479,469		9,480
Multi-family real estate		90,428		90,428		—		90,801		1,146
Consumer		—		—		—		—		—
	$	790,977	$	939,052	$	—	$	802,155	$	14,227

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
With an allowance recorded
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—
Residential		—		—		—		—		—
Consumer		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—

(1) Represents the borrower's loan obligation, gross of any previously charged-off amounts.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
June 30, 2020
With no related allowance
recorded
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		688,616		706,683		—		703,019		35,924
Residential		1,910,288		1,949,867		—		1,953,293		92,195
Consumer		—		—		—		—		—
	$	2,598,904	$	2,656,550	$	—	$	2,656,312	$	128,119

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
With an allowance recorded
Commercial	$	2,249,492	$	2,264,806	$	972,598	$	2,355,363	$	123,657
Commercial real estate		—		—		—		—		—
Residential		327,131		327,131		82,785		333,526		15,742
Consumer		—		—		—		—		—
	$	2,576,623	$	2,591,937	$	1,055,383	$	2,688,889	$	139,399

(1) Represents the borrower's loan obligation, gross of any previously charged-off amounts.

Impaired loans include loans modified in troubled debt restructuring (TDR) where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection.

There were no loans modified in TDR during the three and six months ended December 31, 2020 and 2019. The Bank has made no commitments to lend additional funds on restructured loans.

To work with customers impacted by COVID-19, the Bank is offering short-term (i.e., three months or less with the potential to extend up to six months, if necessary) loan modifications on a case by case basis to borrowers who were current in their payments at the inception of the loan modification program. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 are considered current for COVID-19 modifications. A financial institution can then suspend the requirements under U.S. GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either January 1, 2022 or the 60th day after the end of the COVID-19 national emergency. The Bank made this policy election. Similarly, the Financial Accounting Standards Board (“FASB”) has confirmed that short-term modifications made on a good faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. Lastly, prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.

The Bank has received requests to modify loans, primarily consisting of the deferral of principal and interest payments and the extension of the maturity date. Of these modifications, 100% were performing in accordance with the accounting treatment under Section 4013 of the CARES Act and therefore did not qualify as TDRs. As of December 31, 2020, we had granted short-term payment deferrals on 52 loans, totaling approximately $19.0 million in aggregate principal amount. As of December 31, 2020, 49 of these loans, totaling $18.6 million, have returned to normal payment status.

Details with respect to loan modification requests are as follows:

	Unaudited
	December 31, 2020			June 30, 2020
	Number of Loans	Amount		Number of Loans	Amount
Loan Classification
Commercial real estate	—	$	—	33	$	17,598,305
Commercial and industrial	—		—	—		—
Construction	—		—	—		—
One-to-four-family residential	3		343,051	14		1,589,064
Multi-family real estate	—		—	3		41,568
Consumer	—		—	—		—
Total	3	$	343,051	50	$	19,228,937