Loans

3 Months Ended

Sep. 30, 2021

Loans

Loans

Note 4- Loans

A summary of loans by major category follows:

	September 30, 2021		June 30, 2021
Commercial real estate	$	59,973,761	$	52,148,065
Commercial and industrial (1)		10,496,551		19,278,477
Construction		8,540,644		7,985,188
One-to-four-family residential		51,234,763		48,404,820
Multi-family real estate		17,435,911		17,268,048
Consumer		2,364,607		1,788,997
Total loans		150,046,237		146,873,595
Deferred loan fees		(154,782)		(518,095)
Allowance for loan losses		(2,187,306)		(2,186,182)
Loans, net	$	147,704,149	$	144,169,318

(1) Paycheck protection loans represent $1,236,914 and $10,378,681 of the commercial and industrial loans as of September 30, 2021 and June 30, 2021.

The Company maintains a collateral pledge agreement with the FHLB covering secured advances whereby the Company 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 $34,313,803 and $35,421,507 as of September 30, 2021 and June 30, 2021, respectively. There was also FHLB stock of $262,200 pledged as of September 30, 2021 and June 30, 2021.

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 called the Paycheck Protection Program (“PPP”). This was considered Round 1 of the PPP. Although we were not already a qualified SBA lender, we enrolled in the PPP by completing the required documentation. We subsequently obtained approval as a qualified SBA lender. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and included new funding for the PPP (Round 2). The PPP ended in May 2021.

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 Company 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 September 30, 2021, we had originated 277 PPP loans totaling $18.5 million. As of September 30, 2021, $17.3 million of these PPP loans have been forgiven. As of September 30, 2021, we had 53 PPP loans totaling $1,236,914, net of remaining deferred fees of $118,714 outstanding.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2021 and 2020, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2021 and June 30, 2021:

	Commercial		Commercial				One-to-Four		MultiFamily
	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
September 30, 2021
Allowance for credit losses
Balance at beginning of year	$	1,036,301	$	157,533	$	59,649	$	409,395	$	134,216	$	4,896	$	384,192	$	2,186,182
Charge-offs		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		1,124		—		1,124
Provisions		187,549		(89,036)		(9,003)		(53,138)		(47,734)		(102)		11,464		—
Balance at September 30, 2021	$	1,223,850	$	68,497	$	50,646	$	356,257	$	86,482	$	5,918	$	395,656	$	2,187,306
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,223,850		68,497		50,646		356,257		86,482		5,918		395,656		2,187,306
Balance at end of period	$	1,223,850	$	68,497	$	50,646	$	356,257	$	86,482	$	5,918	$	395,656	$	2,187,306
Loans
Individually evaluated for impairment	$	220,739	$	—	$	—	$	307,840	$	—	$	—	$	—	$	528,579
Collectively evaluated for impairment		59,753,022		10,496,551		8,540,644		50,926,923		17,435,911		2,364,607		—		149,517,658
Balance at end of period	$	59,973,761	$	10,496,551	$	8,540,644	$	51,234,763	$	17,435,911	$	2,364,607	$	—	$	150,046,237

	Commercial		Commercial				One-to-Four		MultiFamily
	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
June 30, 2021
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,036,301		157,533		59,649		409,395		134,216		4,896		384,192		2,186,182
Balance at end of period	$	1,036,301	$	157,533	$	59,649	$	409,395	$	134,216	$	4,896	$	384,192	$	2,186,182
Loans
Individually evaluated for impairment	$	223,983	$	—	$	—	$	315,440	$	—	$	—	$	—	$	539,423
Collectively evaluated for impairment		51,924,082		19,278,477		7,985,188		48,089,380		17,268,048		1,788,997				146,334,172
Balance at end of period	$	52,148,065	$	19,278,477	$	7,985,188	$	48,404,820	$	17,268,048	$	1,788,997	$	—	$	146,873,595

	Commercial		Commercial				One-to-Four		MultiFamily
September 30, 2020	Real Estate		and Industrial		Construction		Residential		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses
Balance at beginning of period	$	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 end of period	$	661,379	$	113,232	$	127,596	$	623,165	$	62,572	$	12,881	$	173,932	$	1,774,757
Individually evaluated for impairment	$	—	$	—	$	—	$	79,532	$	—	$	—	$	—	$	79,532
Collectively evaluated for impairment		661,379		113,232		127,596		543,633		62,572		12,881		173,932		1,695,225
Balance at end of period	$	661,379	$	113,232	$	127,596	$	623,165	$	62,572	$	12,881	$	173,932	$	1,774,757
Loans
Individually evaluated for impairment	$	681,152	$	—	$	—	$	2,276,722	$	—	$	—	$	—	$	2,957,874
Collectively evaluated for impairment		43,248,254		12,762,011		9,883,478		37,038,886		10,788,306		2,570,156		—		116,291,091
Balance at end of period	$	43,929,406	$	12,762,011	$	9,883,478	$	39,315,608	$	10,788,306	$	2,570,156	$	—	$	119,248,965

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, collateral adequacy, 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 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 Company 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 Company.

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 Company 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 September 30, 2021 and June 30, 2021, is as follows:

			Special Mention/
	Pass		Watch		Substandard		Doubtful
September 30, 2021
Commercial real estate	$	58,271,533	$	1,702,228	$	—	$	—
Commercial and industrial		8,834,381		1,662,170		—		—
Construction		8,540,644		—		—		—
	$	75,646,558	$	3,364,398	$	—	$	—

			Special Mention/
	Pass		Watch		Substandard		Doubtful
June 30, 2021
Commercial real estate	$	51,924,082	$	223,983	$	—	$	—
Commercial and industrial		14,245,538		5,032,939		—		—
Construction		7,985,185		—		—		—
	$	74,154,805	$	5,256,922	$	—	$	—

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 September 30, 2021 and June 30, 2021:

	Performing		Nonperforming
September 30, 2021
One-to-four-family residential	$	51,031,248	$	203,515
Multi-family real estate		17,435,911		—
Consumer		2,364,607		—
	$	70,831,766	$	203,515

	Performing		Nonperforming
June 30, 2021
One-to-four-family residential	$	48,226,426	$	178,394
Multi-family real estate		17,268,048		—
Consumer		1,788,997		—
	$	67,283,471	$	178,394

The following table summarizes the aging of the past due loans by loan class within the portfolio segments as of September 30, 2021 and June 30, 2021 (excluding COVID-19 deferrals):

	Still Accruing
	30-59 Days		60-89 Days		Over 90 Days		Nonaccrual
	Past Due		Past Due		Past Due		Balance
September 30, 2021
Commercial real estate	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—
Construction		—		—		—		—
One-to-four-family residential		31,733		—		—		203,515
Multi-family real estate		—		—		—		—
Consumer		—		—		—		—
Total	$	31,733	$	—	$	—	$	203,515

	Still Accruing
	30-59 Days		60-89 Days		Over 90 Days		Nonaccrual
	Past Due		Past Due		Past Due		Balance
June 30, 2021
Commercial real estate	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—
Construction		—		—		—		—
One-to-four-family residential		30,165		3,635		—		178,394
Multi-family real estate		—		—		—		—
Consumer		15,119		—		—		—
Total	$	45,284	$	3,635	$	—	$	178,394

Impaired Loans

A loan is considered impaired when based on current information and events, it is probable that the Company 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 September 30, 2021 and June 30, 2021:

								For the Three Months Ended
								September 30, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
September 30, 2021
With no related allowance recorded
Commercial real estate	$	220,739	$	238,806	$	—	$	222,361	$	3,464
One-to-four-family residential		307,840		347,418		—		311,639		7,575
	$	528,579	$	586,224	$	—	$	534,000	$	11,039

							For the Three Months Ended
							September 30, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
With an allowance recorded
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—
One-to-four-family residential		—		—		—		—		—
Consumer		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—

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

							For the Year Ended
							June 30, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
June 30, 2021
With no related allowance recorded
Commercial real estate	$	223,983	$	242,050	$	—	$	228,710	$	14,628
One-to-four-family residential		315,440		355,019		—		334,581		20,763
	$	539,423	$	597,069	$	—	$	563,291	$	35,391

								For the Year Ended
								June 30, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance (1)		Allowance		Investment		Recognized
With an allowance recorded
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
One-to-four-family residential		—		—		—		—		—
Consumer		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—

(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 as TDRs during the three months ended September 30, 2021 and 2020. The Company has made no commitments to lend additional funds on restructured loans.

To work with customers impacted by COVID-19, the Company 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 Company 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 Company 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 September 30, 2021, we had granted short-term payment deferrals on 56 loans, totaling approximately $20.0 million in aggregate principal amount. As of September 30, 2021, all of these loans have returned to normal payment status.