NOTE 7 – Loans and Allowance for Loan Losses

Major classifications of loans are as follows:


	December 31, 2019		June 30, 2019
Construction, land, development	$	7,242,065	$	4,318,845
1-4 family owner occupied		111,606,950		124,845,322
1-4 family non-owner occupied		20,152,740		20,968,812
Multifamily		77,933,467		73,246,392
Commercial owner occupied		8,198,761		8,508,011
Commercial non-owner occupied		19,265,342		19,502,545
Consumer and installment loans		9,323,100		9,777,441

Total loans		253,722,425		261,167,368
Less:
Allowance for loan losses		(1,262,472)		(1,293,965)

Loans, net	$	252,459,953	$	259,873,403

Non-performing loans are as follows:


	December 31, 2019		June 30, 2019
Nonaccrual Loans	$	1,112,843	$	1,524,868
Total non-performing loans	$	1,112,843	$	1,524,868

Restructured loans, accruing	$	—	$	—
Total impaired loans	$	1,112,843	$	1,524,868

Impaired loans are as follows as of and for the following periods ended:


	December 31, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
With related allowance recorded
Recorded investment	$	—	$	97,774	$	—	$	—	$	191,014	$	—	$	108,728	$	397,516
Unpaid principal balance		—		97,774		—		—		191,014		—		108,728		397,516
Related allowance		—		43,470		—		—		76,086		—		66,848		186,404

With no related allowance recorded
Recorded investment	$	—	$	715,327	$	—	$	—	$	—	$	—	$	—	$	715,327
Unpaid principal balance		—		715,327		—		—		—		—		—		715,327
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	813,101	$	—	$	—	$	191,014	$	—	$	108,728	$	1,112,843
Unpaid principal balance		—		813,101		—		—		191,014		—		108,728		1,112,843
Related allowance		—		43,470		—		—		76,086		—		66,848		186,404

	Three Months Ended December 31, 2019
Average recorded balance	$	—	$	875,987	$	—	$	—	$	191,651	$	—	$	122,114	$	1,189,752
																—
Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		4,012		—		—		1,079		—		—		5,091
Total interest on impaired loans	$	—	$	4,012	$	—	$	—	$	1,079	$	—	$	—	$	5,091

	Six Months Ended December 31, 2019
Average recorded balance	$	—	$	1,070,070	$	2,829	$	—	$	192,294	$	—	$	123,339	$	1,388,532
																—
Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		8,803		298		—		4,382		—		—		13,483
Total interest on impaired loans	$	—	$	8,803	$	298	$	—	$	4,382	$	—	$	—	$	13,483


	June 30, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
With related allowance recorded
Recorded investment	$	—	$	70,608	$	—	$	—	$	193,601	$	—	$	113,856	$	378,065
Unpaid principal balance		—		70,608		—		—		193,601		—		113,856		378,065
Related allowance		—		5,772		—		—		44,564		—		52,979		103,315

With no related allowance recorded
Recorded investment	$	—	$	1,132,648	$	—	$	—	$	—	$	—	$	14,155	$	1,146,803
Unpaid principal balance		—		1,132,648		—		—		—		—		14,155		1,146,803
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	1,203,256	$	—	$	—	$	193,601	$	—	$	128,011	$	1,524,868
Unpaid principal balance		—		1,203,256		—		—		193,601		—		128,011		1,524,868
Related allowance		—		5,772		—		—		44,564		—		52,979		103,315

Average recorded balance	$	19,198	$	865,338	$	21,509	$	—	$	196,182	$	—	$	133,467	$	1,235,694

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		353		19,352		288		—		7,917		—		2,894		30,804
Total interest on impaired loans	$	353	$	19,352	$	288	$	—	$	7,917	$	—	$	2,894	$	30,804


	December 31, 2018
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
With related allowance recorded
Recorded investment	$	—	$	70,608	$	—	$	—	$	196,135	$	—	$	131,268	$	398,011
Unpaid principal balance		—		70,608		—		—		196,135		—		131,268		398,011
Related allowance		—		4,809		—		—		117,498		—		70,391		192,698

With no related allowance recorded
Recorded investment	$	—	$	889,964	$	22,993	$	—	$	—	$	—	$	7,601	$	920,558
Unpaid principal balance		—		889,964		22,993		—		—		—		7,601		920,558
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	960,572	$	22,993	$	—	$	196,135	$	—	$	138,869	$	1,318,569
Unpaid principal balance		—		960,572		22,993		—		196,135		—		138,869		1,318,569
Related allowance		—		4,809		—		—		117,498		—		70,391		192,698

	Three Months Ended December 31, 2018
Average recorded balance	$	—	$	728,723	$	11,496	$	—	$	196,335	$	—	$	136,350	$	1,072,904

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		3,531		1,947		348		—		1,078		—		1,000		7,904
Total interest on impaired loans	$	3,531	$	1,947	$	348	$	—	$	1,078	$	—	$	1,000	$	7,904

	Six Months Ended December 31, 2018
Average recorded balance	$	21,843	$	719,614	$	29,552	$	—	$	197,009	$	—	$	136,347	$	1,104,365

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		3,531		15,063		348		—		3,162		—		1,175		23,279
Total interest in impaired loans	$	3,531	$	15,063	$	348	$	—	$	3,162	$	—	$	1,175	$	23,279

Loans are individually evaluated for impairment once a weakness or adverse trend is identified that may jeopardize the repayment of the loan in accordance with the terms of the loan.

The following are the Company's risk rating definitions:

Pass: Loans in this category are to persons or entities that span from having financial characteristics of unquestioned strength to entities that have potential risks that if left uncorrected could at some point result in deterioration of the Bank’s credit position. Loans in this category are rated “1” through “4” with the lower risk being identified with a lower numerical rating. General characteristics that are monitored include borrower net worth, liquidity and entity profitability.

Special Mention: Loans in this category contain some weakness or potential weakness that if left uncorrected may result in the deterioration of the repayment capacity. Loans in this category are rated as a “5”.

Substandard: Loans in this category exhibit the same characteristics as “5” rated credits and are inadequately protected by the current net worth and paying capacity of the obligor and/or of the collateral pledged as security for the asset. Loans in this category are rated as a “6”.

Real Estate in Judgement: Loans in this category have been placed in non-accrual and the Bank has taken legal action to preserve its position. Loans in this category are rated as a “7”.

The following is a summary of loans by risk rating:


	December 31, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
1-4	$	7,242,065	$	110,793,849	$	20,152,740	$	77,933,467	$	8,007,747	$	11,301,175	$	9,214,372	$	244,645,415
5		—		—		—		—		—		7,964,167		—		7,964,167
6		—		579,603		—		—		191,014		—		32,559		803,176
7		—		233,498		—		—		—		—		76,169		309,667
Total	$	7,242,065	$	111,606,950	$	20,152,740	$	77,933,467	$	8,198,761	$	19,265,342	$	9,323,100	$	253,722,425


	June 30, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
1-4	$	4,318,845	$	123,642,066	$	20,968,812	$	73,246,392	$	8,314,410	$	11,382,336	$	9,649,430	$	251,522,291
5		—		—		—		—		—		8,120,209		—		8,120,209
6		—		895,442		—		—		193,601		—		128,011		1,217,054
7		—		307,814		—		—		—		—		—		307,814
Total	$	4,318,845	$	124,845,322	$	20,968,812	$	73,246,392	$	8,508,011	$	19,502,545	$	9,777,441	$	261,167,368

The following is a summary of past due loans:


	December 31, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
30‑59 days, accruing	$	35,697	$	1,887,777	$	58,833	$	—	$	—	$	25,871	$	50,118	$	2,058,296
60‑89 days, accruing		—		908,130		—		—		—		—		5,312		913,442
90 days & over or nonaccrual		—		813,101		—		—		191,014		—		108,728		1,112,843
Total	$	35,697	$	3,609,008	$	58,833	$	—	$	191,014	$	25,871	$	164,158	$	4,084,581


	June 30, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
30‑59 days, accruing	$	—	$	2,129,016	$	103,706	$	—	$	—	$	—	$	72,482	$	2,305,204
60‑89 days, accruing		—		450,183		—		—		—		—		25,220		475,403
90 days & over or nonaccrual		—		1,203,256		—		—		193,601		—		128,011		1,524,868
Total	$	—	$	3,782,455	$	103,706	$	—	$	193,601	$	—	$	225,713	$	4,305,475

Troubled Debt Restructurings (“TDRs”) involve the granting of some concession to a distressed borrower resulting in a loan modification such as; payment schedule changes, interest rate reductions, or principal charge-offs. There were no new TDRs during the six months ending December 31, 2019. There were also no TDRs that defaulted during the period that were modified within the previous six months as of December 31, 2019. There were no TDRs as of December 31, 2019 and June 30, 2019.

Loans that have previously been restructured in a troubled debt restructuring and are no longer impaired based on the terms specified in their restructuring agreement and are now at a rate equal to or greater than a rate the Bank is willing to accept for a loan with comparable risk are transferred out of TDR status. No loans were transferred out of TDR status during 2019.

The allowance for loan losses reflected in the accompanying condensed consolidated financial statements represents the allowance available to absorb probable and inherent loan losses in the loan portfolio. An analysis of changes in the allowance is presented in the following tabulation for the three and six months ended December 31, 2019 and 2018 and the year ended June 30, 2019:


	Three Months Ended December 31, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Consumer		Unallocated		Total
Allowance
Balance at 10/1/19	$	5,670	$	56,804	$	26,027	$	111,112	$	91,077	$	773,186	$	72,508	$	150,290	$	1,286,674
Charge-offs		—		(18,846)		—		—		—		—		(32,012)		—		(50,858)
Recoveries		—		4,820		—		—		—		—		21,836		—		26,656
Provision		5,193		57,197		(3,859)		5,788		(10,987)		36,536		23,682		(113,550)		—
Balance at 12/31/19	$	10,863	$	99,975	$	22,168	$	116,900	$	80,090	$	809,722	$	86,014	$	36,740	$	1,262,472

	Six Months Ended December 31, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial				Not
	Land,		Owner		Non-Owner				Owner-		Non-Owner				Specifically
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Consumer		Allocated		Total
Allowance
Balance at 6/30/19	$	4,319	$	67,593	$	26,630	$	109,870	$	61,193	$	738,366	$	70,058	$	215,936	$	1,293,965
Charge-offs		—		(18,846)		—		—		—		—		(39,838)		—		(58,684)
Recoveries		—		5,155		—		—		—		—		22,036		—		27,191
Provision		6,544		46,073		(4,462)		7,030		18,897		71,356		33,758		(179,196)		—
Balance at 12/31/19	$	10,863	$	99,975	$	22,168	$	116,900	$	80,090	$	809,722	$	86,014	$	36,740	$	1,262,472

Allowance
Ending balance individually evaluated for impairment	$	—	$	43,470	$	—	$	—	$	76,086	$	—	$	66,848	$	—	$	186,404
Ending balance collectively evaluated for impairment		10,863		56,505		22,168		116,900		4,004		809,722		19,166		36,740		1,076,068
Ending balance	$	10,863	$	99,975	$	22,168	$	116,900	$	80,090	$	809,722	$	86,014	$	36,740	$	1,262,472
Loans
Ending balance individually evaluated for impairment	$	—	$	813,101	$	—	$	—	$	191,014	$	—	$	108,728	$	—	$	1,112,843
Ending balance collectively evaluated for impairment		7,242,065		110,793,849		20,152,740		77,933,467		8,007,747		19,265,342		9,214,372		—		252,609,582
Total loans	$	7,242,065	$	111,606,950	$	20,152,740	$	77,933,467	$	8,198,761	$	19,265,342	$	9,323,100	$	—	$	253,722,425
Less allowance	$	10,863	$	99,975	$	22,168	$	116,900	$	80,090	$	809,722	$	86,014	$	36,740	$	1,262,472
Total loans, net	$	7,231,202	$	111,506,975	$	20,130,572	$	77,816,567	$	8,118,671	$	18,455,620	$	9,237,086	$	(36,740)	$	252,459,953


	June 30, 2019
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial				Not
	Land,		Owner		Non-Owner				Owner-		Non-Owner				Specifically
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Consumer		Allocated		Total
Allowance
Balance at 6/30/18	$	4,758	$	7,300	$	71,053	$	71,101	$	131,906	$	925,355	$	98,096	$	14,590	$	1,324,159
Charge-offs		—		—		(44,534)		—		—		—		(15,809)		—		(60,343)
Recoveries		—		28,735		—		—		—		—		1,414		—		30,149
Provision		(439)		31,558		111		38,769		(70,713)		(186,989)		(13,643)		201,346		—
Balance at 6/30/19	$	4,319	$	67,593	$	26,630	$	109,870	$	61,193	$	738,366	$	70,058	$	215,936	$	1,293,965

Allowance
Ending balance individually evaluated for impairment	$	—	$	5,772	$	—	$	—	$	44,564	$	—	$	52,979	$	—	$	103,315
Ending balance collectively evaluated for impairment		4,319		61,821		26,630		109,870		16,629		738,366		17,079		215,936		1,190,650
Ending balance	$	4,319	$	67,593	$	26,630	$	109,870	$	61,193	$	738,366	$	70,058	$	215,936	$	1,293,965
Loans

Ending balance individually evaluated for impairment	$	—	$	1,203,256	$	—	$	—	$	193,601	$	—	$	128,011	$	—	$	1,524,868
Ending balance collectively evaluated for impairment		4,318,845		123,642,066		20,968,812		73,246,392		8,314,410		19,502,545		9,649,430		—		259,642,500
Total loans	$	4,318,845	$	124,845,322	$	20,968,812	$	73,246,392	$	8,508,011	$	19,502,545	$	9,777,441	$	—	$	261,167,368
Less allowance	$	4,319	$	67,593	$	26,630	$	109,870	$	61,193	$	738,366	$	70,058	$	215,936	$	1,293,965
Total loans, net	$	4,314,526	$	124,777,729	$	20,942,182	$	73,136,522	$	8,446,818	$	18,764,179	$	9,707,383	$	(215,936)	$	259,873,403


	Three Months Ended December 31, 2018
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Consumer		Unallocated		Total
Allowance
Balance at 10/1/18	$	4,958	$	6,151	$	24,542	$	71,120	$	131,113	$	905,405	$	111,323	$	47,198	$	1,301,810
Charge-offs		—		—		(14,042)		—		—		—		(3)		—		(14,045)
Recoveries		—		6,744		—		—		—		—		503		—		7,247
Provision		(1,738)		12,955		18,034		39,984		3,175		(23,608)		(4,115)		(44,687)		—
Balance at 12/31/18	$	3,220	$	25,850	$	28,534	$	111,104	$	134,288	$	881,797	$	107,708	$	2,511	$	1,295,012

	Six Months Ended December 31, 2018
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial				Not
	Land,		Owner		Non-Owner				Owner-		Non-Owner				Specifically
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Consumer		Allocated		Total
Allowance
Balance at 6/30/18	$	4,758	$	7,300	$	71,053	$	71,101	$	131,906	$	925,355	$	98,096	$	14,590	$	1,324,159
Charge-offs		—		—		(44,534)		—		—		—		(2,211)		—		(46,745)
Recoveries		—		16,784		—		—		—		—		814		—		17,598
Provision		(1,538)		1,766		2,015		40,003		2,382		(43,558)		11,009		(12,079)		—
Balance at 12/31/18	$	3,220	$	25,850	$	28,534	$	111,104	$	134,288	$	881,797	$	107,708	$	2,511	$	1,295,012

Allowance
Ending balance individually evaluated for impairment	$	—	$	4,809	$	—	$	—	$	117,498	$	—	$	70,391	$	—	$	192,698
Ending balance collectively evaluated for impairment		3,220		21,041		28,534		111,104		16,790		881,797		37,317		2,511		1,102,314
Ending balance	$	3,220	$	25,850	$	28,534	$	111,104	$	134,288	$	881,797	$	107,708	$	2,511	$	1,295,012
Loans

Ending balance individually evaluated for impairment	$	—	$	960,572	$	22,993	$	—	$	196,135	$	—	$	138,869	$	—	$	1,318,569
Ending balance collectively evaluated for impairment		3,220,671		123,768,658		22,292,226		74,069,572		8,394,869		20,782,399		10,511,753		—		263,040,148
Total loans	$	3,220,671	$	124,729,230	$	22,315,219	$	74,069,572	$	8,591,004	$	20,782,399	$	10,650,622	$	—	$	264,358,717
Less allowance	$	3,220	$	25,850	$	28,534	$	111,104	$	134,288	$	881,797	$	107,708	$	2,511	$	1,295,012
Total loans, net	$	3,217,451	$	124,703,380	$	22,286,685	$	73,958,468	$	8,456,716	$	19,900,602	$	10,542,914	$	(2,511)	$	263,063,705