Loans and Allowance for Credit Losses

3 Months Ended

Sep. 30, 2022

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, 2022		June 30, 2022
Real Estate Loans:
Residential	$	1,006,925	$	904,160
Construction		316,930		258,072
Commercial		1,232,331		1,146,673
Consumer loans		100,170		92,996
Commercial loans		482,734		441,598
		3,139,090		2,843,499
Loans in process		(162,101)		(123,656)
Deferred loan fees, net		(380)		(453)
Allowance for credit losses		(37,418)		(33,192)
Total loans	$	2,939,191	$	2,686,198

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, 2022 the Bank had purchased participations in 38 loans totaling $77.2 million, as compared to 31 loans totaling $70.0 million at June 30, 2022.

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 market area but made to borrowers who operate within our primary lending 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 and supply, 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 of 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 multi-family or commercial construction loans typically mature in 12 to 36 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 12 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, 2022, construction loans outstanding included 53 loans, totaling $32.6 million, for which a modification had been agreed to. At June 30, 2022, construction loans outstanding included 57 loans, totaling $13.8 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 had 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, 2022.

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 66 months, 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 66 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 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, 2022, was $5.1 million, compared to a recovery of $305,000 in the same period of the prior fiscal year. Increased provisioning in the three- month period ended September 30, 2022, was attributed primarily to significant loan growth during the quarter, as well as a modest decline in the modeled economic outlook. The Company assesses that the economic outlook has modestly deteriorated as compared to June 30, 2022. The Company has estimated its expected credit losses as of September 30, 2022, under ASC 326-20, and management believes the ACL as of that date is adequate based on that estimate. There remains, however, significant uncertainty as economic activity recovers from the COVID-19 pandemic and the Federal Reserve withdraws accommodative monetary policy that was put into effect to respond to the pandemic and its economic impact. Projections for GDP growth and unemployment, key drivers in the Company’s ACL model, have deteriorated. As a percentage of average loans outstanding, the Company recorded net charge offs of less than one basis point (annualized) during the current period, little changed from the same period of the prior fiscal year. 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, 2022. 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 increasing risk factor, relative to June 30, 2022;

● the pace of growth of the Company’s loan portfolio, exclusive of acquisitions or government guaranteed loans, relative to overall economic growth. This measure is considered to be a moderate and increasing risk factor;

● levels and trends for loan delinquencies nationally and in the region. This measure as reported remains relatively stable, and the level of uncertainty about loan delinquencies is considered to be diminishing. This is considered to be a moderate and declining risk factor;

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

PCD Loans. In connection with the acquisition of Fortune Financial Corporation (“Fortune”) on February 25, 2022, the Company acquired loans both with and without evidence of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded allowance for loan and lease losses. Acquired loans are accounted for under ASC 326, Financial Instruments – Credit Losses.

The fair value of acquired loans recorded at the time of acquisition is based upon several factors, including the timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount to the unpaid principal balance of the respective loans. As it relates to acquired loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or net discount is adjusted to reflect the Company’s allowance for credit losses recorded for PCD loans at the time of acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the respective loans. As it relates to loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of their fair value adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the remaining life of the respective loans. The Company records an ACL for non-PCD loans at the time of acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.

Loans that the Company acquired from Fortune, that at the time of acquisition had more-than-insignificant deterioration of credit quality since origination, are classified as PCD loans and presented in the table below at acquisition carrying value:

(dollars in thousands)	February 25, 2022
PCD Loans:
Purchase price of PCD loans at acquisition	$	15,055
Allowance for credit losses at acquisition		(120)
Fair value of PCD loans at acquisition	$	14,935

The following tables present the balance in the ACL based on portfolio segment as of September 30, 2022 and 2021, and activity in the ACL for the three- month periods ended September 30, 2022 and 2021:

	At period end and for the three months ended September 30, 2022
	Residential		Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for credit losses:
Balance, beginning of period	$	8,908	$	2,220	$	16,838	$	710	$	4,516	$	33,192
Provision (benefit) charged to expense		3,030		283		1,048		12		(123)		4,250
Losses charged off		(2)		—		—		(35)		—		(37)
Recoveries		1		—		—		6		6		13
Balance, end of period	$	11,937	$	2,503	$	17,886	$	693	$	4,399	$	37,418

	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

The following tables present the balance in the allowance for off-balance sheet credit exposure based on portfolio segment as of September 30, 2022 and 2021, and activity in the allowance for the three- month periods ended September 30, 2022 and 2021:

	At period end and for the three months ended September 30, 2022
	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	$	58	$	2,178	$	421	$	61	$	640	$	3,358
Provision (benefit) charged to expense		135		719		107		—		(155)		806
Balance, end of period	$	193	$	2,897	$	528	$	61	$	485	$	4,164

	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

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, 2022. 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
September 30,	2023		2022		2021		2020		2019		Prior		loans		Total
Residential Real Estate
Pass	$	166,308	$	351,070	$	272,287	$	114,507	$	17,250	$	75,367	$	5,124	$	1,001,913
Watch		209		340		472		1,145		122		28		—		2,316
Special Mention		—		—		—		—		—		—		—		—
Substandard		856		304		428		183		268		657		—		2,696
Doubtful		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	167,373	$	351,714	$	273,187	$	115,835	$	17,640	$	76,052	$	5,124	$	1,006,925
Construction Real Estate
Pass	$	39,956	$	83,638	$	31,023	$	—	$	—	$	—	$	212	$	154,829
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Construction Real Estate	$	39,956	$	83,638	$	31,023	$	—	$	—	$	—	$	212	$	154,829
Commercial Real Estate
Pass	$	118,727	$	468,641	$	273,143	$	107,591	$	68,911	$	121,716	$	25,504	$	1,184,233
Watch		6,736		3,616		762		1,803		—		2,029		50		14,996
Special Mention		—		9,263		—		—		—		—		—		9,263
Substandard		827		22,006		384		3		13		91		515		23,839
Doubtful		—		—		—		—		—		—		—		—
Total Commercial Real Estate	$	126,290	$	503,526	$	274,289	$	109,397	$	68,924	$	123,836	$	26,069	$	1,232,331
Consumer
Pass	$	11,641	$	24,138	$	9,048	$	3,008	$	1,166	$	1,486	$	49,449	$	99,936
Watch		58		—		69		—		—		—		—		127
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		22		12		—		—		31		42		107
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	11,699	$	24,160	$	9,129	$	3,008	$	1,166	$	1,517	$	49,491	$	100,170
Commercial
Pass	$	38,167	$	103,245	$	80,770	$	14,476	$	9,239	$	9,673	$	221,558	$	477,128
Watch		734		1,347		117		37		6		—		2,310		4,551
Special Mention		—		—		—		—		—		—		—		—
Substandard		159		466		39		—		31		2		358		1,055
Doubtful		—		—		—		—		—		—		—		—
Total Commercial	$	39,060	$	105,058	$	80,926	$	14,513	$	9,276	$	9,675	$	224,226	$	482,734
Total Loans
Pass	$	374,799	$	1,030,732	$	666,271	$	239,582	$	96,566	$	208,242	$	301,847	$	2,918,039
Watch		7,737		5,303		1,420		2,985		128		2,057		2,360		21,990
Special Mention		—		9,263		—		—		—		—		—		9,263
Substandard		1,842		22,798		863		186		312		781		915		27,697
Doubtful		—		—		—		—		—		—		—		—
Total	$	384,378	$	1,068,096	$	668,554	$	242,753	$	97,006	$	211,080	$	305,122	$	2,976,989

At September 30, 2022, PCD loans comprised $24.1 million of credits rated “Pass”; $4.7 million rated “Watch”; none rated “Special Mention”; $951,000 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, 2022. 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
June 30,	2022		2021		2020		2019		2018		Prior		loans		Total
Residential Real Estate
Pass	$	380,502	$	295,260	$	118,464	$	19,383	$	22,143	$	58,545	$	6,074	$	900,371
Watch		44		242		1,083		56		—		30		—		1,455
Special Mention		—		—		—		—		—		—		—		—
Substandard		266		918		87		440		18		605		—		2,334
Doubtful		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	380,812	$	296,420	$	119,634	$	19,879	$	22,161	$	59,180	$	6,074	$	904,160
Construction Real Estate
Pass	$	100,114	$	34,082	$	—	$	—	$	—	$	—	$	220	$	134,416
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Construction Real Estate	$	100,114	$	34,082	$	—	$	—	$	—	$	—	$	220	$	134,416
Commercial Real Estate
Pass	$	487,486	$	284,736	$	105,893	$	71,380	$	51,804	$	78,115	$	23,669	$	1,103,083
Watch		4,763		769		1,818		—		668		2,000		548		10,566
Special Mention		9,297		—		—		—		—		—		—		9,297
Substandard		22,086		481		140		13		22		93		65		22,900
Doubtful		827		—		—		—		—		—		—		827
Total Commercial Real Estate	$	524,459	$	285,986	$	107,851	$	71,393	$	52,494	$	80,208	$	24,282	$	1,146,673
Consumer
Pass	$	28,519	$	10,989	$	3,662	$	1,524	$	916	$	676	$	46,521	$	92,807
Watch		21		71		—		—		—		—		—		92
Special Mention		—		—		—		—		—		—		—		—
Substandard		23		6		4		—		10		31		23		97
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	28,563	$	11,066	$	3,666	$	1,524	$	926	$	707	$	46,544	$	92,996
Commercial
Pass	$	111,370	$	93,906	$	20,795	$	10,496	$	3,253	$	7,612	$	190,235	$	437,667
Watch		1,319		194		38		6		—		186		1,206		2,949
Special Mention		—		—		—		—		—		—		—		—
Substandard		295		11		—		186		—		167		323		982
Doubtful		—		—		—		—		—		—		—		—
Total Commercial	$	112,984	$	94,111	$	20,833	$	10,688	$	3,253	$	7,965	$	191,764	$	441,598
Total Loans
Pass	$	1,107,991	$	718,973	$	248,814	$	102,783	$	78,116	$	144,948	$	266,719	$	2,668,344
Watch		6,147		1,276		2,939		62		668		2,216		1,754		15,062
Special Mention		9,297		—		—		—		—		—		—		9,297
Substandard		22,670		1,416		231		639		50		896		411		26,313
Doubtful		827		—		—		—		—		—		—		827
Total	$	1,146,932	$	721,665	$	251,984	$	103,484	$	78,834	$	148,060	$	268,884	$	2,719,843

At June 30, 2022, PCD loans comprised $23.1 million of credits rated “Pass”; $4.7 million of credits rated “Watch”, none rated “Special Mention”, $1.1 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, 2022 and June 30, 2022. 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, 2022
					Greater Than								Greater Than 90
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		Days Past Due
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		and Accruing
(dollars in thousands)
Real Estate Loans:
Residential	$	1,448	$	88	$	1,219	$	2,755	$	1,004,170	$	1,006,925	$	301
Construction		140		—		—		140		154,689		154,829		—
Commercial		1,071		583		84		1,738		1,230,593		1,232,331		—
Consumer loans		439		204		73		716		99,454		100,170		—
Commercial loans		781		102		40		923		481,811		482,734		—
Total loans	$	3,879	$	977	$	1,416	$	6,272	$	2,970,717	$	2,976,989	$	301

	June 30, 2022
					Greater Than								Greater Than 90
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		Days Past Due
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		and Accruing
(dollars in thousands)
Real Estate Loans:
Residential	$	1,402	$	—	$	1,064	$	2,466	$	901,694	$	904,160	$	—
Construction		—		—		—		—		134,416		134,416		—
Commercial		416		615		288		1,319		1,145,354		1,146,673		—
Consumer loans		340		45		57		442		92,554		92,996		—
Commercial loans		274		72		13		359		441,239		441,598		—
Total loans	$	2,432	$	732	$	1,422	$	4,586	$	2,715,257	$	2,719,843	$	—

At September 30, 2022 and June 30, 2022 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, 2022, and June 30, 2022:

	September 30, 2022
	Amortized cost basis of
	loans determined to be		Related allowance
(dollars in thousands)	collateral dependent		for credit losses
Residential real estate loans
1- to 4-family residential loans	$	857	$	185
Total loans	$	857	$	185

	June 30, 2022
	Amortized cost basis of
	loans determined to be		Related allowance
(dollars in thousands)	collateral dependent		for credit losses
Residential real estate loans
1- to 4-family residential loans	$	864	$	193
Total loans	$	864	$	193

Nonaccrual Loans. The following table presents the Company’s amortized cost basis of nonaccrual loans segmented by class of loans at September 30, 2022, and June 30, 2022. The table excludes performing TDRs.

(dollars in thousands)	September 30, 2022		June 30, 2022
Residential real estate	$	1,222	$	1,647
Construction real estate		—		—
Commercial real estate		1,901		2,259
Consumer loans		86		73
Commercial loans		389		139
Total loans	$	3,598	$	4,118

At September 30, 2022, 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, 2022 and 2021, 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, 2022 and 2021, certain loans modified were classified as TDRs. They are shown, segregated by class, in the tables below:

	For the three-month periods ended
	September 30, 2022			September 30, 2021
	Number of	Recorded		Number of	Recorded
(dollars in thousands)	modifications	Investment		modifications	Investment
Residential real estate	—	$	—	1	$	151
Construction real estate	—		—	—		—
Commercial real estate	—		—	—		—
Consumer loans	—		—	—		—
Commercial loans	—		—	—		—
Total	—	$	—	1	$	151

Performing loans classified as TDRs and outstanding at September 30, 2022, and June 30, 2022, segregated by class, are shown in the table below. Nonperforming TDRs are shown as nonaccrual loans.

	September 30, 2022			June 30, 2022
	Number of	Recorded		Number of	Recorded
(dollars in thousands)	modifications	Investment		modifications	Investment
Residential real estate	10	$	3,291	11	$	3,625
Construction real estate	—		—	—		—
Commercial real estate	8		24,943	8		25,132
Consumer loans	—		—	—		—
Commercial loans	7		1,986	8		1,849
Total	25	$	30,220	27	$	30,606

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, 2022 and June 30, 2022, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $230,000 and $580,000, respectively. In addition, as of September 30, 2022, and June 30, 2022, the Company had residential mortgage loans and home equity loans with a carrying value of $651,000 and $486,000, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.