Loans and Allowance for Credit Losses

3 Months Ended

Sep. 30, 2021

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

Note 4:  Loans and Allowance for Credit Losses

Classes of loans are summarized as follows:

(dollars in thousands)	September 30, 2021		June 30, 2021
Real Estate Loans:
Residential	$	762,204	$	721,216
Construction		235,501		208,824
Commercial		901,281		889,793
Consumer loans		80,467		77,674
Commercial loans		411,402		414,124
		2,390,855		2,311,631
Loans in process		(107,555)		(74,540)
Deferred loan fees, net		(1,279)		(3,625)
Allowance for loan losses		(32,543)		(33,222)
Total loans	$	2,249,478	$	2,200,244

The Company’s lending activities consist of origination of loans secured by mortgages on one- to four-family residences and commercial and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. At September 30, 2021 the Company had purchased participations in 25 loans totaling $87.0 million, as compared to 23 loans totaling $83.0 million at June 30, 2021.

Residential Mortgage Lending. The Company actively originates loans for the acquisition or refinance of one- to four-family residences. This category includes both fixed-rate and adjustable-rate mortgage (“ARM”) loans amortizing over periods of up to 30 years, and the properties securing such loans may be owner-occupied or non-owner-occupied. Single-family residential loans do not generally exceed 90% of the lower of the appraised value or purchase price of the secured

property. Substantially all of the one- to four-family residential mortgage originations in the Company’s portfolio are located within the Company’s primary lending area. General risks related to one- to four-family residential lending include stability of borrower income and collateral values.

The Company also originates loans secured by multi-family residential properties that are often located outside the Company’s primary lending area but made to borrowers who operate within our primary market area. The majority of the multi-family residential loans that are originated by the Company are amortized over periods generally up to 25 years, with balloon maturities typically up to ten years. Both fixed and adjustable interest rates are offered and it is typical for the Company to include an interest rate “floor” and “ceiling” in the loan agreement. Generally, multi-family residential loans do not exceed 85% of the lower of the appraised value or purchase price of the secured property. General risks related to multi-family residential lending include rental demand, rental rates, and vacancies, as well as collateral values and borrower leverage.

Commercial Real Estate Lending. The Company actively originates loans secured by owner- and non-owner-occupied commercial real estate including farmland, single- and multi-tenant retail properties, restaurants, hotels, land (improved and unimproved), nursing homes and other healthcare facilities, warehouses and distribution centers, convenience stores, automobile dealerships and other automotive-related services, and other businesses. These properties are typically owned and operated by borrowers headquartered within the Company’s primary lending area, however, the property may be located outside our primary lending area. Risks to owner-occupied commercial real estate lending generally include the continued profitable operation of the borrower’s enterprise, as well as general collateral values, and may be heightened by unique, specific uses of the property serving as collateral. Non-owner-occupied commercial real estate lending risks include tenant demand and performance, lease rates, and vacancies, as well as collateral values and borrower leverage. These factors may be influenced by general economic conditions in the region, or in the United States generally. Risks to lending on farmland include unique factors such as commodity prices, yields, input costs, and weather, as well as farmland values.

Most commercial real estate loans originated by the Company generally are based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to ten years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to seven years. The Company typically includes an interest rate “floor” in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio.

Construction Lending. The Company originates real estate loans secured by property or land that is under construction or development. Construction loans originated by the Company are generally to finance the construction of owner occupied residential real estate, or to finance speculative construction of residential real estate, land development, or owner-operated or non-owner occupied commercial real estate. During construction, these loans typically require monthly interest-only payments, with single-family residential construction loans having maturities ranging from six to twelve months, while multifamily or commercial construction loans typically mature in 12 to 24 months. Once construction is completed, permanent construction loans may be converted to monthly payments using amortization schedules of up to 30 years on residential and generally up to 25 years on commercial real estate. Construction and development lending risks generally include successful timely and on-budget completion of the project, followed by the sale of the property in the case of land development or non-owner-occupied real estate, or the long-term occupancy of the property by the builder in the case of owner-occupied construction. Changes in real estate values or other economic conditions may impact the ability of a borrower to sell property developed for that purpose.

While the Company typically utilizes relatively short maturity periods to closely monitor the inherent risks associated with construction loans for these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity. Such extensions are typically executed in incremental three month periods to facilitate project completion. The Company’s average term of construction loans is approximately nine months. During construction, loans typically require monthly interest only payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment. Additionally, during the construction phase, the Company typically performs interim inspections which further allow the Company opportunity to

assess risk. At September 30, 2021, construction loans outstanding included 43 loans, totaling $29.0 million, for which a modification had been agreed to. At June 30, 2021, construction loans outstanding included 48 loans, totaling $28.5 million, for which a modification had been agreed to. In general, these modifications were solely for the purpose of extending the maturity date due to conditions described above, pursuant to the Company’s normal underwriting and monitoring procedures. As these modifications were not executed due to financial difficulty on the part of the borrower, they were not accounted for as troubled debt restructurings (TDRs); nor were they made pursuant to exemptions provided under the CARES Act. Under the CARES Act, financial institutions have the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Loans modified under the CARES Act did not include any construction loans with drawn balances at September 30, 2021.

Consumer Lending. The Company offers a variety of secured consumer loans, including home equity, direct and indirect automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary lending area. Usually, consumer loans are originated with fixed rates for terms of up to five years, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.

Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity. Risks related to HELOC lending generally include the stability of borrower income and collateral values.

Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 60 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle. Risks related to automobile and other consumer lending generally include the stability of borrower income and borrower willingness to repay.

Commercial Business Lending. The Company’s commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit, including agricultural production and equipment loans. The Company offers both fixed and adjustable rate commercial business loans. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period. Commercial lending risk is primarily driven by the borrower’s successful generation of cash flow from their business enterprise sufficient to service debt, and may be influenced by factors specific to the borrower and industry, or by general economic conditions in the region or in the United States generally. Agricultural production or equipment lending includes unique risk factors such as commodity prices, yields, input costs, and weather, as well as farm equipment values.

Allowance for Credit Losses. The provision for credit losses for the three-month period ended September 30, 2021, was a credit of $305,000 compared to a charge of $1.0 million in the same period of the prior fiscal year. The recovery was based on the estimated required ACL, reflecting management’s estimate of the current expected credit losses in the Company’s loan portfolio at September 30, 2021, and as of that date the Company’s ACL was $32.5 million. Reduced provisioning in the three-month period ended September 30, 2021, was attributed primarily to an improved outlook regarding the economic environment resulting as the economy recovers from the effects of the COVID-19 pandemic, and the Company notes less uncertainty regarding the potential adverse impact on its borrowers generally low and consistent levels of net charge offs, and a reduction in delinquent or adversely classified credits, and nonperforming loans. While the Company assesses that the economic outlook has continued to improve during the current quarter as compared to the year ended June 30, 2021, there remains uncertainty regarding the possible continuing impact of the COVID-19 pandemic or when transmission of the virus will abate to the point that restrictions are no longer being imposed or considered, and consumer behavior can be said to have returned to normal. As such, there remains a potential for the pandemic to negatively impact global and regional economies, or for recent efforts by the U.S. government and the Federal Reserve to respond to the pandemic and its economic impact to fall short of expectations. Specifically, management considered the following:

●  economic conditions and projections as provided by Moody’s Analytics, including baseline and downside scenarios were utilized in the Company’s estimate at September 30, 2021. Economic factors considered in the projections included national and state levels of unemployment, and national and state rates of inflation-adjusted growth in the gross domestic product. Economic conditions are considered to be a moderate and declining risk factor;

● the pace of growth of the Company’s loan portfolio, exclusive of acquisitions or government guaranteed loans, relative to overall economic growth. This measure remains elevated, but continued to moderate in the most recent quarter, and is considered to be a moderate and declining risk factor;

● levels and trends for loan delinquencies nationally and in the region. This measure as reported remains relatively stable, but management considered the potential that the measure remains under-reported due to the availability of modifications under the CARES Act. The level of uncertainty about loan delinquencies is considered to be diminishing. This is considered to be an elevated but declining risk factor;

● exposure to the hotel industry, in particular, metropolitan area hotels more impacted by activity restrictions and a lack of business or convention-related travel. This is considered to be an elevated and stable risk factor.

Management considered the impact of the COVID-19 pandemic on its consumer and business borrowers, particularly those business borrowers most affected by efforts to contain the pandemic, including our borrowers in the retail and multi-tenant retail industry, restaurants, and hotels, when making qualitative factor adjustments. To date, various relief efforts, notably including the availability of forgivable Paycheck Protection Program (PPP) loans to borrowers and deferrals or modifications available as encouraged by banking regulatory authorities and the CARES Act, have resulted in limited impact on the Company’s credit quality indicators, as is true of the industry generally. It is possible that the ongoing adverse effects of the pandemic may not be offset by future relief efforts, which could cause the outlook for economic conditions and levels and trends of past-due loans to significantly worsen, and require additions to the ACL.

The following tables present the balance in the ACL and the recorded investment in loans (excluding loans in process and deferred loan fees) based on portfolio segment as of September 30, 2021 and 2020, and activity in the ACL for the three- month periods ended September 30, 2021 and 2020:

	At period end and for the three months ended September 30, 2021
	Residential		Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for credit losses:
Balance, beginning of period	$	11,192	$	2,170	$	14,535	$	916	$	4,409	$	33,222
Provision (benefit) charged to expense		(528)		(125)		348		(72)		(302)		(679)
Losses charged off		(31)		—		—		(13)		—		(44)
Recoveries		1		—		—		42		1		44
Balance, end of period	$	10,634	$	2,045	$	14,883	$	873	$	4,108	$	32,543

	At period end and for the three months ended September 30, 2020
	Residential		Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for credit losses:
Balance, beginning of period prior to adoption of CECL	$	4,875	$	2,010	$	12,132	$	1,182	$	4,940	$	25,139
Impact of CECL adoption		3,521		(121)		3,856		1,065		1,012		9,333
Provision charged to expense		252		3		61		61		397		774
Losses charged off		(19)		—		—		(6)		(145)		(170)
Recoveries		—		—		1		3		4		8
Balance, end of period	$	8,629	$	1,892	$	16,050	$	2,305	$	6,208	$	35,084

The following tables present the balance in the allowance for off-balance sheet credit exposure based on portfolio segment as of September 30, 2021 and 2020, and activity in the allowance for the three- month periods ended September 30, 2021 and 2020:

	At period end and for the three months ended September 30, 2021
	Residential			Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for off-balance sheet credit exposure:
Balance, beginning of period	$	37	$	502	$	188	$	218	$	860	$	1,805
Provision (benefit) charged to expense		(3)		1,171		(18)		(160)		(616)		374
Balance, end of period	$	34	$	1,673	$	170	$	58	$	244	$	2,179

	At period end and for the three months ended September 30, 2020
	Residential			Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for off-balance sheet credit exposure:
Balance, beginning of period prior to CECL adoption	$	19	$	769	$	172	$	153	$	846	$	1,959
Impact of CECL adoption		35		(167)		95		197		108		268
Provision (benefit) charged to expense		5		166		32		4		19		226
Balance, end of period	$	59	$	768	$	299	$	354	$	973	$	2,453

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, 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 is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Watch, Special Mention, Substandard, or Doubtful. In addition, lending relationships of $3 million or more, exclusive of any consumer or owner-occupied residential loan, are subject to an annual credit analysis which is prepared by the loan administration department and presented to a loan committee with appropriate lending authority. A sample of lending relationships in excess of $1 million (exclusive of single-family residential real estate loans) are subject to an independent loan review annually, in order to verify risk ratings. The Company uses the following definitions for risk ratings:

Watch – Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.

Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.

Substandard – Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral. 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 of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.

A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk grades. The primary responsibility for this review rests with loan administration

personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by the Company’s internal audit function and applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit continues to share similar risk characteristics with collectively evaluated loan pools, or whether credit losses for the loan should be evaluated on an individual loan basis.

The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and fiscal year of origination as of September 30, 2021. This table includes PCD loans, which are reported according to risk categorization after acquisition based on the Company’s standards for such classification:

(dollars in thousands)													Revolving
	2022		2021		2020		2019		2018		Prior		loans		Total
Residential Real Estate
Pass	$	83,975	$	348,844	$	165,830	$	38,339	$	30,770	$	82,928	$	5,513	$	756,199
Watch		86		326		70		407		—		801		—		1,690
Special Mention		—		—		—		—		—		—		—		—
Substandard		488		3,224		151		86		53		313		—		4,315
Doubtful		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	84,549	$	352,394	$	166,051	$	38,832	$	30,823	$	84,042	$	5,513	$	762,204
Construction Real Estate
Pass	$	40,324	$	57,553	$	29,945	$	—	$	—	$	—	$	—	$	127,822
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		124		—		—		—		—		—		124
Doubtful		—		—		—		—		—		—		—		—
Total Construction Real Estate	$	40,324	$	57,677	$	29,945	$	—	$	—	$	—	$	—	$	127,946
Commercial Real Estate
Pass	$	87,878	$	326,200	$	124,280	$	103,953	$	71,713	$	117,116	$	24,716	$	855,856
Watch		291		4,614		2,202		1,718		873		721		810		11,229
Special Mention		—		—		8,806		—		1,793		12,826		300		23,725
Substandard		3,307		4,733		1,129		269		27		101		69		9,635
Doubtful		—		—		—		836		—		—		—		836
Total Commercial Real Estate	$	91,476	$	335,547	$	136,417	$	106,776	$	74,406	$	130,764	$	25,895	$	901,281
Consumer
Pass	$	9,322	$	19,800	$	6,871	$	2,767	$	857	$	1,037	$	39,609	$	80,263
Watch		1		78		—		—		—		—		48		127
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		31		14		2		—		30		—		77
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	9,323	$	19,909	$	6,885	$	2,769	$	857	$	1,067	$	39,657	$	80,467
Commercial
Pass	$	29,032	$	158,480	$	28,738	$	16,176	$	4,934	$	13,914	$	155,439	$	406,713
Watch		429		1,350		262		53		7		—		458		2,559
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		564		48		291		—		172		1,055		2,130
Doubtful		—		—		—		—		—		—		—		—
Total Commercial	$	29,461	$	160,394	$	29,048	$	16,520	$	4,941	$	14,086	$	156,952	$	411,402
Total Loans
Pass	$	250,531	$	910,877	$	355,664	$	161,235	$	108,274	$	214,995	$	225,277	$	2,226,853
Watch		807		6,368		2,534		2,178		880		1,522		1,316		15,605
Special Mention		—		—		8,806		—		1,793		12,826		300		23,725
Substandard		3,795		8,676		1,342		648		80		616		1,124		16,281
Doubtful		—		—		—		836		—		—		—		836
Total	$	255,133	$	925,921	$	368,346	$	164,897	$	111,027	$	229,959	$	228,017	$	2,283,300

At September 30, 2021, PCD loans comprised $12.1 million of credits rated “Pass”; none rated “Watch”; none rated “Special Mention”; $2.8 million of credits rated “Substandard”; and none rated “Doubtful”.

The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and fiscal year of origination as of June 30, 2021. This table includes PCD loans, which were reported according to risk categorization after acquisition based on the Company’s standards for such classification:

(dollars in thousands)													Revolving
	2021		2020		2019		2018		2017		Prior		loans		Total
Residential Real Estate
Pass	$	361,876	$	175,772	$	43,576	$	32,929	$	23,267	$	71,592	$	5,557	$	714,569
Watch		328		70		410		—		89		809		—		1,706
Special Mention		—		—		—		—		—		—		—		—
Substandard		4,288		89		—		92		—		472		—		4,941
Doubtful		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	366,492	$	175,931	$	43,986	$	33,021	$	23,356	$	72,873	$	5,557	$	721,216
Construction Real Estate
Pass	$	88,371	$	45,866	$	—	$	—	$	—	$	—	$	—	$	134,237
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		47		—		—		—		—		—		—		47
Doubtful		—		—		—		—		—		—		—		—
Total Construction Real Estate	$	88,418	$	45,866	$	—	$	—	$	—	$	—	$	—	$	134,284
Commercial Real Estate
Pass	$	351,732	$	147,670	$	104,746	$	75,967	$	70,927	$	61,194	$	23,699	$	835,935
Watch		4,456		2,365		9,502		1,377		726		10		810		19,246
Special Mention		—		8,806		—		1,793		12,826		—		300		23,725
Substandard		8,191		1,137		505		31		5		99		69		10,037
Doubtful		—		—		850		—		—		—		—		850
Total Commercial Real Estate	$	364,379	$	159,978	$	115,603	$	79,168	$	84,484	$	61,303	$	24,878	$	889,793
Consumer
Pass	$	23,858	$	8,626	$	3,597	$	1,126	$	534	$	650	$	39,071	$	77,462
Watch		80		—		—		—		—		—		48		128
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		30		30		—		24		84
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	23,938	$	8,626	$	3,597	$	1,156	$	564	$	650	$	39,143	$	77,674
Commercial
Pass	$	189,280	$	42,549	$	17,960	$	5,591	$	7,265	$	9,120	$	136,603	$	408,368
Watch		1,551		262		1,323		22		—		—		463		3,621
Special Mention		—		—		—		—		—		—		—		—
Substandard		594		81		305		—		176		—		979		2,135
Doubtful		—		—		—		—		—		—		—		—
Total Commercial	$	191,425	$	42,892	$	19,588	$	5,613	$	7,441	$	9,120	$	138,045	$	414,124
Total Loans
Pass	$	1,015,117	$	420,483	$	169,879	$	115,613	$	101,993	$	142,556	$	204,930	$	2,170,571
Watch		6,415		2,697		11,235		1,399		815		819		1,321		24,701
Special Mention		—		8,806		—		1,793		12,826		—		300		23,725
Substandard		13,120		1,307		810		153		211		571		1,072		17,244
Doubtful		—		—		850		—		—		—		—		850
Total	$	1,034,652	$	433,293	$	182,774	$	118,958	$	115,845	$	143,946	$	207,623	$	2,237,091

At June 30, 2021, PCD loans comprised $3.2 million of credits rated “Pass”; $9.0 million of credits rated “Watch”, none rated “Special Mention”, $2.7 million of credits rated “Substandard” and none rated “Doubtful”.

Past-due Loans. The following tables present the Company’s loan portfolio aging analysis (excluding loans in process and deferred loan fees) as of September 30, 2021 and June 30, 2021. These tables include PCD loans, which are reported according to aging analysis after acquisition based on the Company’s standards for such classification:

	September 30, 2021
					Greater Than								Greater Than 90
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		Days Past Due
(dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Receivable		and Accruing
Real Estate Loans:
Residential	$	1,475	$	84	$	499	$	2,058	$	760,146	$	762,204	$	—
Construction		—		—		—		—		127,946		127,946		—
Commercial		598		671		—		1,269		900,012		901,281		—
Consumer loans		193		87		56		336		80,131		80,467		—
Commercial loans		283		43		817		1,143		410,259		411,402		—
Total loans	$	2,549	$	885	$	1,372	$	4,806	$	2,278,494	$	2,283,300	$	—

	June 30, 2021
					Greater Than								Greater Than 90
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		Days Past Due
(dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Receivable		and Accruing
Real Estate Loans:
Residential	$	312	$	364	$	613	$	1,289	$	719,927	$	721,216	$	—
Construction		—		—		30		30		134,254		134,284		—
Commercial		363		—		374		737		889,056		889,793		—
Consumer loans		195		66		84		345		77,329		77,674		—
Commercial loans		368		939		110		1,417		412,707		414,124		—
Total loans	$	1,238	$	1,369	$	1,211	$	3,818	$	2,233,273	$	2,237,091	$	—

Under the CARES Act, financial institutions have the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Loans with such modifications in effect at September 30, 2021, included $23.7 million in loans reported as current in the above table, while none were reported as past due. Loans with such modifications in effect at June 30, 2021, included $23.9 million in loans reported as current in the above table, while none were reported as past due.

At September 30 and June 30, 2021 there were no PCD loans that were greater than 90 days past due.

Loans that experience insignificant payment delays and payment shortfalls generally are not adversely classified or determined to not share similar risk characteristics with collectively evaluated pools of loans for determination of the ACL estimate. 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 loan 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. Significant payment delays or shortfalls may lead to a determination that a loan should be individually evaluated for estimated credit losses.

Collateral-dependent Loans. The following table presents the Company’s collateral dependent loans and related ACL at September 30, and June 30, 2021:

	September 30, 2021
	Amortized cost basis of
	loans determined to be		Related allowance
	collateral dependent		for credit losses
(dollars in thousands)
Residential real estate loans
1- to 4-family residential loans	$	889	$	217
Total loans	$	889	$	217

	June 30, 2021
	Amortized cost basis of
	loans determined to be		Related allowance
	collateral dependent		for credit losses
(dollars in thousands)
Residential real estate loans
1- to 4-family residential loans	$	895	$	223
Total loans	$	895	$	223

Nonaccrual Loans. The following table presents the Company’s amortized cost basis of nonaccrual loans segmented by class of loans at September 30, and June 30, 2021. The table excludes performing TDRs.

(dollars in thousands)	September 30, 2021		June 30, 2021
Residential real estate	$	3,059	$	3,235
Construction real estate		—		30
Commercial real estate		1,950		1,914
Consumer loans		65		100
Commercial loans		1,059		589
Total loans	$	6,133	$	5,868

At September 30, 2021, there were no nonaccrual loans individually evaluated for which no ACL was recorded. Interest income recognized on nonaccrual loans in the three- month periods ended September 30, 2021 and 2020, was immaterial.

Troubled Debt Restructurings. TDRs are evaluated to determine whether they share similar risk characteristics with collectively evaluated loan pools, or must be individually evaluated. These concessions typically result from our loss mitigation activities, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. In general, the Company’s loans that have been subject to classification as TDRs are the result of guidance under ASU No. 2011-02, which indicates that the Company may not consider the borrower’s effective borrowing rate on the old debt immediately before the restructuring in determining whether a concession has been granted. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

During the three- month periods ended September 30, 2021 and 2020, certain loans modified were classified as TDRs. They are shown, segregated by class, in the table below:

	For the three-month periods ended
	September 30, 2021			September 30, 2020
	Number of	Recorded		Number of	Recorded
(dollars in thousands)	modifications	Investment		modifications	Investment
Residential real estate	1	$	151	1	$	98
Construction real estate	—		—	—		—
Commercial real estate	—		—	2		1,840
Consumer loans	—		—	—		—
Commercial loans	—		—	1		36
Total	1	$	151	4	$	1,974

Performing loans classified as TDRs and outstanding at September 30, and June 30, 2021, segregated by class, are shown in the table below. Nonperforming TDRs are shown as nonaccrual loans.

	September 30, 2021			June 30, 2021
	Number of	Recorded		Number of	Recorded
(dollars in thousands)	modifications	Investment		modifications	Investment
Residential real estate	3	$	1,133	1	$	895
Construction real estate	—		—	—		—
Commercial real estate	5		988	4		949
Consumer loans	—		—	—		—
Commercial loans	7		1,464	7		1,397
Total	15	$	3,585	12	$	3,241

Residential Real Estate Foreclosures. The Company 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 and June 30, 2021, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $635,000 and $622,000, respectively. In addition, as of September 30 and June 30, 2021, the Company had residential mortgage loans and home equity loans with a carrying value of $247,000 and $533,000, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.