Loans Receivable

9 Months Ended

Mar. 31, 2022

Note 4. Loans Receivable

Loans receivable are summarized as follows (in thousands):


	March 31,			June 30,
	2022			2021
Mortgage loans:
Residential	$	215,431		$	224,305
Commercial		897,424			826,624
Construction		16,894			10,151
Net deferred loan origination (fees) costs		(23	)		196
Total mortgage loans		1,129,726			1,061,276
Commercial and consumer loans:
Commercial loans		141,427			150,658
Home equity lines of credit		22,557			25,439
Consumer and overdrafts		348			345
Net deferred loan origination costs (fees)		539			(386	)
Total commercial and consumer loans		164,871			176,056
Total loans receivable		1,294,597			1,237,332
Allowance for loan losses		(8,711	)		(7,881	)
Loans receivable, net	$	1,285,886		$	1,229,451

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31, 2022
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	319	$	1		$	-		$	4	$	324
Commercial mortgages		6,853		206			-			-		7,059
Construction		129		37			-			-		166
Commercial loans		1,067		40			(8	)		10		1,109
Home equity lines of credit		51		(4	)		-			2		49
Consumer and overdrafts		10		6			(16	)		4		4
Total	$	8,429	$	286		$	(24	)	$	20	$	8,711

	Three Months Ended March 31, 2021
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	334	$	(4	)	$	-		$	2	$	332
Commercial mortgages		6,872		(354	)		-			-		6,518
Construction		205		(103	)		-			-		102
Commercial loans		1,201		(437	)		(21	)		105		848
Home equity lines of credit		61		(1	)		-			2		62
Consumer and overdrafts		4		5			(6	)		-		3
Total	$	8,677	$	(894	)	$	(27	)	$	109	$	7,865


	Nine Months Ended March 31, 2022
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	337	$	(21	)	$	-		$	8	$	324
Commercial mortgages		6,435		624			-			-		7,059
Construction		102		64			-			-		166
Commercial loans		948		(121	)		(108	)		390		1,109
Home equity lines of credit		54		(11	)		-			6		49
Consumer and installment loans		5		28			(34	)		5		4
Total	$	7,881	$	563		$	(142	)	$	409	$	8,711

	Nine Months Ended March 31, 2021
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	373	$	(49	)	$	-		$	8	$	332
Commercial mortgages		6,913		(395	)		-			-		6,518
Construction		165		(63	)		-			-		102
Commercial loans		1,124		(187	)		(245	)		156		848
Home equity lines of credit		60		(4	)		-			6		62
Consumer and installment loans		4		20			(23	)		2		3
Total	$	8,639	$	(678	)	$	(268	)	$	172	$	7,865

The following tables present the balance in the allowance for loan losses and the recorded investment in loans, excluding net deferred fees and accrued interest, by portfolio segment, and based on impairment method as of March 31, 2022 and June 30, 2021 (in thousands):


	March 31, 2022
	Loans								Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired With Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired With Deteriorated Credit Quality		Total
Residential mortgages	$	1,740	$	213,274	$	417	$	215,431	$	110	$	214	$	-	$	324
Commercial mortgages		4,790		891,768		866		897,424		-		7,059		-		7,059
Construction		1,113		15,781		-		16,894		-		166		-		166
Commercial loans		652		140,775		-		141,427		-		1,109		-		1,109
Home equity lines of credit		375		22,071		111		22,557		8		41		-		49
Consumer and overdrafts		-		348		-		348		-		4		-		4
Total	$	8,670	$	1,284,017	$	1,394	$	1,294,081	$	118	$	8,593	$	-	$	8,711


	June 30, 2021
	Loans								Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired With Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired With Deteriorated Credit Quality		Total
Residential mortgages	$	2,356	$	221,229	$	720	$	224,305	$	113	$	224	$	-	$	337
Commercial mortgages		3,582		822,154		888		826,624		-		6,435		-		6,435
Construction		-		10,151		-		10,151		-		102		-		102
Commercial loans		1,707		148,951		-		150,658		-		948		-		948
Home equity lines of credit		414		24,902		123		25,439		8		46		-		54
Consumer and overdrafts		-		345		-		345		-		5		-		5
Total	$	8,059	$	1,227,732	$	1,731	$	1,237,522	$	121	$	7,760	$	-	$	7,881

The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by portfolio segment as of March 31, 2022 and June 30, 2021 (in thousands):



	March 31, 2022						June 30, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related allowance recorded:
Residential mortgages	$	1,365	$	1,323	$	-	$	2,044	$	1,931	$	-
Commercial mortgages		4,796		4,790		-		3,582		3,582		-
Construction		1,113		1,113		-		-		-		-
Commercial loans		664		652		-		1,878		1,707		-
Home equity lines of credit		314		339		-		358		381		-
With an allowance recorded:
Residential mortgages		356		417		110		363		425		113
Home equity lines of credit		36		36		8		33		33		8
Total	$	8,644	$	8,670	$	118	$	8,258	$	8,059	$	121

The tables below present the average recorded investment and interest income recognized on loans individually evaluated for impairment, by portfolio segment, for the three and nine months ended March 31, 2022 and 2021 (in thousands):


	Three months ended				Three months ended
	March 31, 2022				March 31, 2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential mortgages	$	1,472	$	16	$	1,822	$	7
Commercial mortgages		4,790		12		-		-
Construction		1,113		-		-		-
Commercial loans		653		3		1,749		47
Home equity lines of credit		339		-		379		-
With an allowance recorded:
Residential mortgages		418		3		427		4
Home equity lines of credit		36		1		30		-
Total	$	8,821	$	35	$	4,407	$	58

	Nine Months Ended				Nine Months Ended
	March 31, 2022				March 31, 2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential mortgages	$	1,750	$	46	$	1,905	$	27
Commercial mortgages		4,065		12		-		-
Construction		445		-		-		-
Commercial loans		704		197		1,786		144
Home equity lines of credit		343		2		384		1
With an allowance recorded:
Residential mortgages		421		10		429		11
Home equity lines of credit		35		1		24		-
Total	$	7,763	$	268	$	4,528	$	183

The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by portfolio segment, as of March 31, 2022 and June 30, 2021 (in thousands):


					Loans Past Due Over 90 Days
	Nonaccrual				and Still Accruing
	March 31,		June 30,		March 31,		June 30,
	2022		2021		2022		2021
Residential mortgages	$	793	$	1,391	$	-	$	-
Commercial mortgages		4,790		3,582		423		411
Construction		1,113		-		-		-
Commercial loans		400		-		-		-
Home equity lines of credit		339		381		-		-
Total	$	7,435	$	5,354	$	423	$	411

Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes acquired loans that are accounted for as purchased credit impaired loans totaling $351,000 and $368,000 as of March 31, 2022 and June 30, 2021, respectively. Such loans are excluded because the loans are in pools that are considered performing. The discounts arising from recording these loans at fair value upon acquisition were due in part to credit quality and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows.

The following tables present the aging of the recorded investment in past due loans by portfolio segment as of March 31, 2022 and June 30, 2021 (in thousands):


	March 31, 2022
	30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current (1)		Total
Residential mortgages	$	-	$	-	$	869	$	869	$	214,562	$	215,431
Commercial mortgages		-		-		1,631		1,631		895,793		897,424
Construction		-		-		1,113		1,113		15,781		16,894
Commercial loans		12		11		400		423		141,004		141,427
Home equity lines of credit		97		-		357		454		22,103		22,557
Consumer and overdrafts		-		-		-		-		348		348
Total	$	109	$	11	$	4,370	$	4,490	$	1,289,591	$	1,294,081


	June 30, 2021
	30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current (1)		Total

Residential mortgages	$	198	$	126	$	948	$	1,272	$	223,033	$	224,305
Commercial mortgages		453		-		411		864		825,760		826,624
Construction		-		-		-		-		10,151		10,151
Commercial loans		69		76		-		145		150,513		150,658
Home equity lines of credit		-		19		381		400		25,039		25,439
Consumer and overdrafts		-		-		-		-		345		345
Total	$	720	$	221	$	1,740	$	2,681	$	1,234,841	$	1,237,522

(1)

As of March 31, 2022 and June 30, 2021, loans on a COVID-19-related payment deferral are considered current.

Troubled Debt Restructurings

The terms of certain loans have been modified as troubled debt restructurings (“TDRs”). The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. All TDRs are considered impaired loans.

As of March 31, 2022 and June 30, 2021, the Company had 8 and 12 loans, classified as TDRs totaling $1.6 million and $3.1 million, including $1.2 million and $2.7 million, respectively, of loans still accruing interest. The Company has allocated

$118,000 and $121,000, respectively, of specific reserves to customers whose loan terms have been modified in TDRs as of March 31, 2022 and June 30, 2021. As of March 31, 2022, the Company has no commitments to lend additional funds to customers with outstanding loans that are classified as TDRs.

The Company did not modify any loans during the three or nine months ended March 31, 2022 or 2021 that were classified as TDRs.

There were no defaults of TDRs occurring in the three or nine months ended March 31, 2022 or March 31, 2021 that were modified in the twelve months prior to default.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provides banks 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. On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law. Section 541 of this legislation, “Extension of Temporary Relief From Troubled Debt Restructurings and Insurer Clarification,” extends Section 4013 of the CARES Act to the earlier of January 1, 2022 or 60 days after the termination of the national emergency declared relating to COVID-19. This legislation expired on January 1, 2022. Additionally, on April 7, 2020, the banking agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement”), to encourage banks to work prudently with borrowers and to describe the agencies’ interpretation of how accounting rules under ASC 310-40, “Troubled Debt Restructurings by Creditors,” apply to certain COVID-19-related modifications.

During the three months ended March 31, 2022, no loan payment deferrals were granted or extended by the Company. During the nine months ended March 31, 2022, the Company granted or extended loan payment deferrals for one residential mortgage, two commercial mortgages and two commercial loans totaling $91,000, $5.6 million and $205,000, respectively. In accordance with either the CARES Act (as amended) or Interagency Statement, these modifications are not considered TDRs. The Company had one loan totaling $3.6 million and 19 loans totaling $27.3 million on loan payment deferral as of March 31, 2022 and June 30, 2021, respectively.

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 includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company utilizes the same grading process for acquired loans as it does for originated loans. 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 and loans in groups of homogenous loans are considered to be pass rated loans. These loans are monitored based on delinquency and performance. Based on the most recent analysis performed, the risk category of loans by portfolio segment is as follows (in thousands):


	March 31, 2022
	Pass		Special Mention		Substandard		Total
Residential mortgages	$	213,685	$	156	$	1,590	$	215,431
Commercial mortgages		878,607		2,947		15,870		897,424
Construction		15,781		-		1,113		16,894
Commercial loans		137,265		21		4,141		141,427
Home equity lines of credit		22,047		82		428		22,557
Consumer and overdrafts		348		-		-		348
Total	$	1,267,733	$	3,206	$	23,142	$	1,294,081


	June 30, 2021
	Pass		Special Mention		Substandard		Total
Residential mortgages	$	219,901	$	2,480	$	1,924	$	224,305
Commercial mortgages		809,660		1,615		15,349		826,624
Construction		9,038		1,113		-		10,151
Commercial loans		146,275		491		3,892		150,658
Home equity lines of credit		24,400		602		437		25,439
Consumer and overdrafts		345		-		-		345
Total	$	1,209,619	$	6,301	$	21,602	$	1,237,522

As of March 31, 2022, the $3.6 million in loans in a COVID-19 related payment deferral were rated as substandard. As of June 30, 2021, of the $27.3 million in loans on deferral, $9.9 million were pass-rated, $3.2 million were rated special mention and $14.2 million were rated substandard.

Purchased Credit Impaired Loans

The Company has acquired loans 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 as of March 31, 2022 and June 30, 2021 is as follows (in thousands):


	March 31,		June 30,
	2022		2021
Residential mortgages	$	417	$	720
Commercial mortgages		866		888
Home equity lines of credit		111		123
Carrying amount, net of allowance of $0	$	1,394	$	1,731

There was no provision for loan losses on purchased credit impaired loans during the three and nine months ended March 31, 2022 or 2021.

Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands):


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2022			2021			2022			2021
Beginning balance	$	101		$	147		$	130		$	156
New loans acquired		-			-			-			-
Accretion income		(5	)		(9	)		(34	)		(18	)
Reclassification from non-accretable difference		-			-			-			-
Disposals		-			-			-			-
Ending balance	$	96		$	138		$	96		$	138