Loans and Allowance for Credit Losses

9 Months Ended

Mar. 31, 2024

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)	March 31, 2024		June 30, 2023
Real Estate Loans:
Residential	$	1,200,723	$	1,133,417
Construction		432,030		550,052
Commercial		1,608,935		1,562,379
Consumer loans		140,123		133,515
Commercial loans		616,603		599,030
		3,998,414		3,978,393
Loans in process		(226,969)		(359,196)
Deferred loan fees, net		(251)		(299)
Allowance for credit losses		(51,336)		(47,820)
Total loans	$	3,719,858	$	3,571,078

The Company’s lending activities consist of originating 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 March 31, 2024, the Bank had purchased participations in 69 loans totaling $174.6 million, as compared to 86 loans totaling $155.6 million at June 30, 2023.

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 have been 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, 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 provide the Company an opportunity to assess risk. At March 31, 2024, construction loans outstanding included 41 loans, totaling $18.0 million, for which a modification had been agreed to. At June 30, 2023, construction loans outstanding included 53 loans, totaling $33.4 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 modifications to borrowers experiencing financial difficulty.

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 90% 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 additional risk factors such as commodity prices, yields, input costs, and weather, as well as farm equipment values.

Allowance for Credit Losses. The PCL for the three- and nine- month periods ended March 31, 2024, was $900,000 and $2.7 million, respectively, compared to $10.1 million and $16.3 million in the same periods of the prior fiscal year. The PCL for the nine- month period ended March 31, 2024 was the result of a $4.9 million provision attributable to the ACL for loan balances outstanding, partially offset by a recovery of $2.2 million in provision attributable to the allowance for off-balance sheet credit exposures. In the same period of the prior fiscal year, the ACL required for PCD loans acquired in the Citizens merger was $1.1 million, and was funded through purchase accounting adjustments, while the ACL required for non-PCD loans acquired in the Citizens merger was $5.2 million, and was funded through a charge to PCL. Additionally, the allowance for off-balance sheet credit exposures in the prior period was increased by $1.8 million due to the Citizens merger and funded through a charge to PCL. Exclusive of the charges required as a result of the Citizens merger, the Company would have recorded a PCL of approximately $3.1 million and $9.3 million for the three- and nine-month periods ended March 31, 2023, respectively, of which $2.0 million and $6.6 million, respectively, were attributable to the required ACL for loan balances outstanding, while $1.1 million and $2.7 million, respectively, were attributable to the required allowance for off-balance sheet credit exposures, for the three- and nine-month periods. The Company’s assessment of the economic outlook at March 31, 2024, was slightly improved as compared to the assessment as of June 30, 2023. Qualitative adjustments in the Company’s ACL model were slightly decreased based on a reduction in the pace of growth in the Company’s loan portfolio. The Company modestly increased ACL adjustments to some individually analyzed classified loans that have been slow to recover from the COVID-19 pandemic and other

smaller balance loans. As a percentage of average loans outstanding, the Company recorded net charge offs of five basis points (annualized) for the first nine months of fiscal 2024 compared to two basis points in the same period of the prior fiscal year. Decreased provisioning for off-balance sheet credit exposures is attributable primarily to changes in the level of outstanding credit commitments. The Company has estimated its expected credit losses as of March 31, 2024, under ASC 326-20, and management believes the ACL as of that date is adequate based on that estimate. Specifically, management considered the following primary qualitative items in its estimate of the ACL:

●  economic conditions and projections as provided by Moody’s Analytics, including baseline and downside scenarios, were utilized in the Company’s estimate at March 31, 2024. 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 stable risk factor, relative to June 30, 2023;

● 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 slightly decreasing risk factor, relative to June 30, 2023;

● levels and trends for loan delinquencies nationally and in the region. This is considered to be a low and stable risk factor, relative to June 30, 2023;

PCD Loans. In connection with the acquisition of Citizens Bancshares, Co. (“Citizens”) on January 20, 2023, and 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, 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 Citizens and 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 tables below at acquisition carrying value:

(dollars in thousands)	January 20, 2023
PCD Loans – Citizens
Purchase price of PCD loans at acquisition	$	27,481
Allowance for credit losses at acquisition		(1,121)
Fair value of PCD loans at acquisition	$	26,360

(dollars in thousands)	February 25, 2022
PCD Loans – Fortune
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 March 31, 2024 and 2023, and activity in the ACL for the three- and nine- month periods ended March 31, 2024 and 2023:

	At period end and for the nine months ended March 31, 2024
	Residential		Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for credit losses:
Balance, beginning of period	$	15,641	$	2,664	$	22,838	$	909	$	5,768	$	47,820
Provision (benefit) charged to expense		(151)		(28)		4,250		185		594		4,850
Losses charged off		(133)		(289)		(496)		(263)		(249)		(1,430)
Recoveries		—		—		18		69		9		96
Balance, end of period	$	15,357	$	2,347	$	26,610	$	900	$	6,122	$	51,336

	At period end and for the three months ended March 31, 2024
	Residential		Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for credit losses:
Balance, beginning of period	$	15,096	$	2,864	$	25,177	$	890	$	6,057	$	50,084
Provision (benefit) charged to expense		262		(517)		1,433		53		127		1,358
Losses charged off		(1)		—		—		(48)		(65)		(114)
Recoveries		—		—		—		5		3		8
Balance, end of period	$	15,357	$	2,347	$	26,610	$	900	$	6,122	$	51,336

	At period end and for the nine months ended March 31, 2023
	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
Initial ACL on PCD loans		96		12		628		164		221		1,121
Provision charged to expense		4,462		1,406		1,324		283		4,325		11,800
Losses charged off		(2)		—		(245)		(189)		(17)		(453)
Recoveries		1		—		—		18		6		25
Balance, end of period	$	13,465	$	3,638	$	18,545	$	986	$	9,051	$	45,685

	At period end and for the three months ended March 31, 2023
	Residential		Construction		Commercial
(dollars in thousands)	Real Estate		Real Estate		Real Estate		Consumer		Commercial		Total
Allowance for credit losses:
Balance, beginning of period	$	12,499	$	2,754	$	16,806	$	761	$	4,663	$	37,483
Initial ACL on PCD loans		96		12		628		164		221		1,121
Provision charged to expense		870		872		1,111		165		4,167		7,185
Losses charged off		—		—		—		(113)		—		(113)
Recoveries		—		—		—		9		—		9
Balance, end of period	$	13,465	$	3,638	$	18,545	$	986	$	9,051	$	45,685

The following tables present the balance in the allowance for off-balance sheet credit exposure based on portfolio segment as of March 31, 2024 and 2023, and activity in the allowance for the three- and nine- month periods ended March 31, 2024 and 2023:

	At period end and for the nine months ended March 31, 2024
	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	$	71	$	4,809	$	475	$	73	$	860	$	6,288
Provision (benefit) charged to expense		32		(2,179)		(59)		—		56		(2,150)
Balance, end of period	$	103	$	2,630	$	416	$	73	$	916	$	4,138

	At period end and for the three months ended March 31, 2024
	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	$	77	$	3,083	$	469	$	68	$	899	$	4,596
Provision (benefit) charged to expense		26		(453)		(53)		5		17		(458)
Balance, end of period	$	103	$	2,630	$	416	$	73	$	916	$	4,138

	At period end and for the nine months ended March 31, 2023
	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		47		3,400		(80)		41		1,058		4,466
Balance, end of period	$	105	$	5,578	$	341	$	102	$	1,698	$	7,824

	At period end and for the three months ended March 31, 2023
	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	$	70	$	3,629	$	480	$	56	$	702	$	4,937
Provision (benefit) charged to expense		35		1,949		(139)		46		996		2,887
Balance, end of period	$	105	$	5,578	$	341	$	102	$	1,698	$	7,824

The current fiscal year-to-date gross charge-offs by loan class and year of origination is presented in the following table:

													Revolving
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		loans		Total
Real Estate Loans:
Residential	$	—	$	—	$	—	$	97	$	—	$	36	$	—	$	133
Construction		—		100		78		111		—		—		—		289
Commercial		—		496		—		—		—		—		—		496
Consumer loans		7		123		97		29		—		7		—		263
Commercial loans		—		59		180		10		—		—		—		249
Total current-period gross charge-offs	$	7	$	778	$	355	$	247	$	—	$	43	$	—	$	1,430

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 March 31, 2024. This table includes PCD loans, which are reported according to risk categorization after acquisition based on the Company’s standards for such classification:

													Revolving
(dollars in thousands)	2024		2023		2022		2021		2020		Prior		loans		Total
Residential Real Estate
Pass	$	144,167	$	321,471	$	291,486	$	240,540	$	88,617	$	99,045	$	11,265	$	1,196,591
Watch		772		248		87		543		100		212		—		1,962
Special Mention		—		—		—		—		—		—		—		—
Substandard		30		869		467		190		94		520		—		2,170
Doubtful		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	144,969	$	322,588	$	292,040	$	241,273	$	88,811	$	99,777	$	11,265	$	1,200,723
Construction Real Estate
Pass	$	53,463	$	131,996	$	19,602	$	—	$	—	$	—	$	—	$	205,061
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Construction Real Estate	$	53,463	$	131,996	$	19,602	$	—	$	—	$	—	$	—	$	205,061
Commercial Real Estate
Pass	$	199,494	$	404,802	$	459,603	$	250,979	$	79,670	$	104,358	$	43,014	$	1,541,920
Watch		1,019		23,038		1,392		155		4,112		77		520		30,313
Special Mention		—		—		—		—		—		—		—		—
Substandard		5,083		1,482		28,198		162		34		929		814		36,702
Doubtful		—		—		—		—		—		—		—		—
Total Commercial Real Estate	$	205,596	$	429,322	$	489,193	$	251,296	$	83,816	$	105,364	$	44,348	$	1,608,935
Consumer
Pass	$	24,221	$	21,497	$	8,513	$	3,436	$	1,002	$	1,175	$	79,919	$	139,763
Watch		3		—		—		—		—		—		—		3
Special Mention		—		—		—		—		—		—		—		—
Substandard		1		23		18		4		20		193		98		357
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	24,225	$	21,520	$	8,531	$	3,440	$	1,022	$	1,368	$	80,017	$	140,123
Commercial
Pass	$	136,749	$	87,926	$	58,761	$	57,240	$	7,220	$	12,207	$	249,891	$	609,994
Watch		1,525		323		101		—		—		17		537		2,503
Special Mention		—		—		—		—		—		—		—		—
Substandard		564		751		1,182		108		261		905		335		4,106
Doubtful		—		—		—		—		—		—		—		—
Total Commercial	$	138,838	$	89,000	$	60,044	$	57,348	$	7,481	$	13,129	$	250,763	$	616,603
Total Loans
Pass	$	558,094	$	967,692	$	837,965	$	552,195	$	176,509	$	216,785	$	384,089	$	3,693,329
Watch		3,319		23,609		1,580		698		4,212		306		1,057		34,781
Special Mention		—		—		—		—		—		—		—		—
Substandard		5,678		3,125		29,865		464		409		2,547		1,247		43,335
Doubtful		—		—		—		—		—		—		—		—
Total	$	567,091	$	994,426	$	869,410	$	553,357	$	181,130	$	219,638	$	386,393	$	3,771,445

At March 31, 2024, PCD loans comprised $40.0 million of credits rated “Pass”; $8.5 million of credits rated “Watch”; none rated “Special Mention”; $3.4 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, 2023. This table includes PCD loans, which were reported according to risk categorization after acquisition based on the Company’s standards for such classification:

													Revolving
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		loans		Total
Residential Real Estate
Pass	$	328,142	$	312,853	$	252,077	$	103,735	$	25,651	$	96,035	$	9,100	$	1,127,593
Watch		1,214		1,136		616		108		198		27		5		3,304
Special Mention		—		—		—		—		—		—		—		—
Substandard		837		316		510		—		—		857		—		2,520
Doubtful		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	330,193	$	314,305	$	253,203	$	103,843	$	25,849	$	96,919	$	9,105	$	1,133,417
Construction Real Estate
Pass	$	124,479	$	50,011	$	10,946	$	3,190	$	—	$	—	$	941	$	189,567
Watch		280		—		—		—		—		—		—		280
Special Mention		—		—		—		—		—		—		—		—
Substandard		330		679		—		—		—		—		—		1,009
Doubtful		—		—		—		—		—		—		—		—
Total Construction Real Estate	$	125,089	$	50,690	$	10,946	$	3,190	$	—	$	—	$	941	$	190,856
Commercial Real Estate
Pass	$	462,643	$	474,140	$	279,921	$	89,272	$	74,653	$	83,871	$	37,443	$	1,501,943
Watch		8,122		5,382		163		3,879		—		117		—		17,663
Special Mention		2,940		—		—		—		—		—		—		2,940
Substandard		7,690		26,465		2,425		288		473		1,735		757		39,833
Doubtful		—		—		—		—		—		—		—		—
Total Commercial Real Estate	$	481,395	$	505,987	$	282,509	$	93,439	$	75,126	$	85,723	$	38,200	$	1,562,379
Consumer
Pass	$	36,003	$	14,530	$	5,446	$	1,692	$	717	$	1,379	$	73,225	$	132,992
Watch		71		—		62		—		—		—		—		133
Special Mention		—		—		—		—		—		—		—		—
Substandard		33		2		1		—		—		41		313		390
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	36,107	$	14,532	$	5,509	$	1,692	$	717	$	1,420	$	73,538	$	133,515
Commercial
Pass	$	138,500	$	83,011	$	71,054	$	10,723	$	6,239	$	10,657	$	272,710	$	592,894
Watch		698		211		91		3		—		—		2,549		3,552
Special Mention		—		—		—		—		—		—		—		—
Substandard		860		329		128		184		175		574		334		2,584
Doubtful		—		—		—		—		—		—		—		—
Total Commercial	$	140,058	$	83,551	$	71,273	$	10,910	$	6,414	$	11,231	$	275,593	$	599,030
Total Loans
Pass	$	1,089,767	$	934,545	$	619,444	$	208,612	$	107,260	$	191,942	$	393,419	$	3,544,989
Watch		10,385		6,729		932		3,990		198		144		2,554		24,932
Special Mention		2,940		—		—		—		—		—		—		2,940
Substandard		9,750		27,791		3,064		472		648		3,207		1,404		46,336
Doubtful		—		—		—		—		—		—		—		—
Total	$	1,112,842	$	969,065	$	623,440	$	213,074	$	108,106	$	195,293	$	397,377	$	3,619,197

At June 30, 2023, PCD loans comprised $37.4 million of credits rated “Pass”; $12.7 million of credits rated “Watch”, none rated “Special Mention”, $6.3 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 March 31, 2024 and June 30, 2023. These tables include PCD loans, which are reported according to aging analysis after acquisition based on the Company’s standards for such classification:

	March 31, 2024
					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	$	1,068	$	334	$	879	$	2,281	$	1,198,442	$	1,200,723	$	81
Construction		486		69		—		555		204,506		205,061		—
Commercial		442		129		1,112		1,683		1,607,252		1,608,935		—
Consumer loans		795		257		193		1,245		138,878		140,123		—
Commercial loans		1,613		333		930		2,876		613,727		616,603		—
Total loans	$	4,404	$	1,122	$	3,114	$	8,640	$	3,762,805	$	3,771,445	$	81

	June 30, 2023
					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	$	1,984	$	401	$	483	$	2,868	$	1,130,549	$	1,133,417	$	109
Construction		443		311		698		1,452		189,404		190,856		—
Commercial		616		1,854		1,580		4,050		1,558,329		1,562,379		—
Consumer loans		456		124		212		792		132,723		133,515		—
Commercial loans		713		77		789		1,579		597,451		599,030		—
Total loans	$	4,212	$	2,767	$	3,762	$	10,741	$	3,608,456	$	3,619,197	$	109

At March 31, 2024, and June 30, 2023 there was no PCD loan that was 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 tables present the Company’s collateral dependent loans and related ACL at March 31, 2024, and June 30, 2023:

	March 31, 2024
	Amortized cost basis of
	loans determined to be		Related allowance
(dollars in thousands)	collateral dependent		for credit losses
Real estate loans
1- to 4-family residential real estate	$	807	$	126
Commercial real estate		23,230		9,269
Commercial		1,178		494
Total loans	$	25,215	$	9,889

	June 30, 2023
	Amortized cost basis of
	loans determined to be		Related allowance
(dollars in thousands)	collateral dependent		for credit losses
Real estate loans
1- to 4-family residential	$	837	$	156
Construction real estate		642		79
Commercial real estate		4,897		666
Total loans	$	6,376	$	901

The increase in commercial real estate collateral dependent loans is due primarily to two metropolitan area hotel relationships being individually analyzed as of March 31, 2024; the Company was previously evaluating its non-owner occupied commercial real estate pool for qualitative adjustments related to similar loans.

Nonaccrual Loans. The following table presents the Company’s amortized cost basis of nonaccrual loans segmented by class of loans at March 31, 2024, and June 30, 2023. The table excludes performing modifications to borrowers experiencing financial difficulty at March 31, 2024 and excludes performing troubled debt restructurings (“TDRs”) at June 30, 2023.

(dollars in thousands)	March 31, 2024		June 30, 2023
Residential real estate	$	1,416	$	934
Construction real estate		—		698
Commercial real estate		3,250		4,564
Consumer loans		674		256
Commercial loans		1,989		1,091
Total loans	$	7,329	$	7,543

At March 31, 2024, there were no nonaccrual loans individually evaluated for which no ACL was recorded. Interest income recognized on nonaccrual loans in the three- and nine- month periods ended March 31, 2024 and 2023, was immaterial.

Modifications to Borrowers Experiencing Financial Difficulty. The Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,” effective July 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

During the three- month period ended March 31, 2024, there were no loan modifications made for borrowers experiencing financial difficulty. During the nine- month period ended March 31, 2024, certain loan modifications were made to loans for borrowers experiencing financial difficulty. They are shown, segregated by class, in the table below:

	For the nine-month periods ended
	March 31, 2024
	Number of	Recorded
(dollars in thousands)	modifications	Investment
Residential real estate	—	$	—
Construction real estate	—		—
Commercial real estate	—		—
Consumer loans	—		—
Commercial loans	2		859
Total	2	$	859

Performing loans classified as modifications to borrowers experiencing financial difficulty outstanding at March 31, 2024 are shown in the following table segregated by portfolio segment and type of modification. The percentage of amortized cost of loans that were modified compared to total outstanding loans is also presented below.

	March 31, 2024
					Term		Interest		Total Class of
	Principal		Payment		Extension		Rate		Financing
	Forgiveness		Delays		Modifications		Reduction		Receivable
(dollars in thousands)
Residential real estate	$	—	$	—	$	807	$	—	0.07	%
Construction real estate		—		—		—		—	—	%
Commercial real estate		—		—		23,627		—	1.47	%
Consumer loans		—		—		—		—	—	%
Commercial loans		—		235		179		—	0.07	%
Total	$	—	$	235	$	24,613	$	—	0.66	%

TDRs. Prior to the adoption of ASU 2022-02, the Company’s loans that were subject to classification as TDRs were generally the result of guidance under ASU No. 2011-02, which indicated 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 were classified as nonperforming at the time of restructuring and typically were returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

During the three- and nine- month periods ended March 31, 2023, there were no loans modified as TDRs.

Performing loans classified as TDRs and outstanding at June 30, 2023, segregated by class, are shown in the table below. Nonperforming TDRs at June 30, 2023, are included in the nonaccrual loans table above.

	June 30, 2023
	Number of	Recorded
(dollars in thousands)	modifications	Investment
Residential real estate	10	$	3,438
Construction real estate	—		—
Commercial real estate	6		24,017
Consumer loans	—		—
Commercial loans	6		2,310
Total	22	$	29,765

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 March 31, 2024 and June 30, 2023, the Company had no foreclosed residential real estate properties as a result of obtaining physical possession. In addition, as of March 31, 2024, and June 30, 2023, the Company had residential mortgage loans and home equity loans with a carrying value of $2.1 million and $1.5 million, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.