NOTE C - LOANS

The composition of the loan portfolio at June 30 was as follows:

The amounts above include net deferred loan fees of $290,000 and $167,000 as of June 30, 2022 and 2021.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2022 and 2021. There were $400,000 and $595,000 in loans acquired with deteriorated credit quality at June 30, 2022 and 2021, respectively.

June 30, 2022:

The following table presents impaired loans by class of loans as of and for the years ended June 30, 2022 and 2021:

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual status by class of loans as of June 30, 2022 and 2021. The tables include loans acquired with deteriorated credit quality. At June 30, 2022, the table below includes approximately $301,000 of loans on nonaccrual and no loans past due over 90 days and still accruing of loans acquired with deteriorated credit quality, while at June 30, 2021, approximately $365,000 of loans on nonaccrual and no loans past due over 90 days and still accruing represent such loans.

One- to four-family loans in process of foreclosure totaled $489,000 and $577,000 at June 30, 2022 and 2021, respectively.

Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

At June 30, 2022 and 2021, the Company had $1.4 million and $1.7 million of loans classified as TDRs, respectively. Of the TDRs at June 30, 2022, approximately 24.7% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the year ended June 30, 2022, the Company had no loans restructured as TDRs.

During the year ended June 30, 2021, the Company had two loans, which were associated with a single borrower and were both secured by a single-family residence, restructured as TDRs. The loans were classified as TDRs pursuant to court action under Chapter 7 bankruptcy proceedings without the borrower reaffirming the debt personally. Those two loans were current and totaled $142,000 at June 30, 2021.

In December 2020, Congress amended the CARES Act through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. In response to the Covid-19 pandemic and the widespread economic downturn that immediately resulted, the Company adopted a loan forbearance plan in which then-current affected borrowers could request deferral of their loan payments for a period of three months. A total of $815,000 in loans were accepted into the plan for the twelve months ended June 30, 2021. At June 30, 2021 all of those loans had reached the end of their three-month deferral date period and returned to regular payment status.

In order to determine whether a borrower is experiencing financial difficulty, we consider the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The Company had no allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2022 or 2021. At June 30, 2022 and 2021, TDR loans on nonaccrual status totaled $1.4 million and $1.7 million, respectively. The Company had no commitments to lend additional amounts as of June 30, 2022 and 2021, to customers with outstanding loans that are classified as troubled debt restructurings. The Company had no TDR loans which defaulted during fiscal 2022 or during fiscal 2021.

The following tables present the aging of the principal balance outstanding in accruing past due loans as of June 30, 2022 and 2021, by class of loans. The tables include loans acquired with deteriorated credit quality. At June 30, 2022, the table below includes $161,000 in loans 30-89 days past due and approximately $15,000 of loans past due over 90 days that were acquired with deteriorated credit quality, while at June 30, 2021, the table below includes $96,000 in loans 30-89 days past due and approximately $25,000 of loans past due over 90 days of such loans.

June 30, 2022:

June 30, 2021:

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 an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 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 inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above.

As of June 30, 2022, and 2021, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows:

June 30, 2022:

June 30, 2021:

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended June 30, 2022 and 2021:

June 30, 2022:

June 30, 2021:

Purchased Loans:

The Company purchased loans during the fiscal year ended June 30, 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $88,000 and $88,000, at June 30, 2022 and 2021, respectively, was as follows:

Accretable yield, or income expected to be collected on loans purchased during fiscal year 2013, for the years ended June 30 was as follows:

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the years ended June 30, 2022 or 2021, nor were any allowance for loan losses reversed during those years.