NOTE 7 – Loans and Allowance for Loan Losses

Major classifications of loans are as follows:


	March 31, 2020		June 30, 2019
Construction, land, development	$	4,762,278	$	4,318,845
1-4 family owner occupied		109,212,203		124,845,322
1-4 family non-owner occupied		20,098,726		20,968,812
Multifamily		78,150,768		73,246,392
Commercial owner occupied		6,843,419		8,508,011
Commercial non-owner occupied		18,744,604		19,502,545
Consumer and installment loans		8,737,423		9,777,441

Total loans		246,549,421		261,167,368
Less:
Allowance for loan losses		(1,303,434)		(1,293,965)

Loans, net	$	245,245,987	$	259,873,403

In the table above, outstanding loan balances are presented net of deferred loan origination fees of $245,000 at March 31, 2020 and $312,000 at June 30, 2019.

Non-performing loans are as follows:


	March 31, 2020		June 30, 2019
Nonaccrual Loans	$	1,267,622	$	1,524,868
Total non-performing loans	$	1,267,622	$	1,524,868

Restructured loans, accruing	$	—	$	—
Total impaired loans	$	1,267,622	$	1,524,868

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


	March 31, 2020
	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	$	—	$	93,110	$	—	$	—	$	189,702	$	—	$	106,164	$	388,976
Unpaid principal balance		—		93,110		—		—		189,702		—		106,164		388,976
Related allowance		—		59,000		—		—		77,510		—		64,283		200,793

With no related allowance recorded
Recorded investment	$	—	$	805,785	$	—	$	—	$	—	$	—	$	72,861	$	878,646
Unpaid principal balance		—		805,785		—		—		—		—		72,861		878,646
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	898,895	$	—	$	—	$	189,702	$	—	$	179,025	$	1,267,622
Unpaid principal balance		—		898,895		—		—		189,702		—		179,025		1,267,622
Related allowance		—		59,000		—		—		77,510		—		64,283		200,793

	Three Months Ended March 31, 2020
Average recorded balance	$	—	$	900,114	$	14,708	$	—	$	190,364	$	—	$	144,751	$	1,249,937
																—
Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		3,847		—		—		—		—		712		4,559
Total interest on impaired loans	$	—	$	3,847	$	—	$	—	$	—	$	—	$	712	$	4,559

	Nine Months Ended March 31, 2020
Average recorded balance	$	—	$	1,027,784	$	7,863	$	—	$	191,650	$	—	$	133,365	$	1,360,662
																—
Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		12,651		298		—		4,382		—		712		18,043
Total interest on impaired loans	$	—	$	12,651	$	298	$	—	$	4,382	$	—	$	712	$	18,043


	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


	March 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	$	—	$	70,608	$	—	$	—	$	196,135	$	—	$	116,420	$	383,163
Unpaid principal balance		—		70,608		—		—		196,135		—		116,420		383,163
Related allowance		—		5,325		—		—		45,768		—		56,397		107,490

With no related allowance recorded
Recorded investment	$	—	$	899,537	$	—	$	—	$	—	$	—	$	7,601	$	907,138
Unpaid principal balance		—		899,537		—		—		—		—		7,601		907,138
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	970,145	$	—	$	—	$	196,135	$	—	$	124,021	$	1,290,301
Unpaid principal balance		—		970,145		—		—		196,135		—		124,021		1,290,301
Related allowance		—		5,325		—		—		45,768		—		56,397		107,490

	Three Months Ended March 31, 2019
Average recorded balance	$	—	$	965,358	$	11,496	$	—	$	196,135	$	—	$	131,445	$	1,304,434

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		1,386		18		—		—		—		1,070		2,474
Total interest on impaired loans	$	—	$	1,386	$	18	$	—	$	—	$	—	$	1,070	$	2,474

	Nine Months Ended March 31, 2019
Average recorded balance	$	14,562	$	801,528	$	23,533	$	—	$	196,718	$	—	$	134,855	$	1,171,196

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		3,531		16,449		367		—		3,162		—		2,244		25,753
Total interest in impaired loans	$	3,531	$	16,449	$	367	$	—	$	3,162	$	—	$	2,244	$	25,753

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:


	March 31, 2020
	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	$	4,762,278	$	108,313,308	$	20,098,726	$	78,150,768	$	6,653,717	$	10,862,375	$	8,558,398	$	237,399,570
5		—		—		—		—		—		7,882,229		—		7,882,229
6		—		898,895		—		—		189,702		—		102,856		1,191,453
7		—		—		—		—		—		—		76,169		76,169
Total	$	4,762,278	$	109,212,203	$	20,098,726	$	78,150,768	$	6,843,419	$	18,744,604	$	8,737,423	$	246,549,421


	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:


	March 31, 2020
	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	$	—	$	711,352	$	64,190	$	—	$	—	$	—	$	40,792	$	816,334
60‑89 days, accruing		—		289,676		—		—		—		—		—		289,676
90 days & over or nonaccrual		—		898,895		—		—		189,702		—		179,025		1,267,622
Total	$	—	$	1,899,923	$	64,190	$	—	$	189,702	$	—	$	219,817	$	2,373,632


	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

There were no new TDRs during the nine months ending March 31, 2020. There were also no TDRs that defaulted during the period that were modified within the previous nine months as of March 31, 2020. There were no TDRs as of March 31, 2020 and June 30, 2019. As discussed within “Significant Events” of Note 1, under Section 4013 of the CARES Act, a financial institution can suspend the requirements under U.S. GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Of the loan modification requests received subsequent to March 31, 2020, one loan totaling $194,000 did not qualify for the favorable accounting treatment under Section 4013 of the CARES Act and therefore will be reported as a TDR. As the conditions requiring the need for the loan modification as well as the modification request were received subsequent to March 31, 2020, this loan was not reported as a TDR as of quarter end. Management has evaluated the loan and determined that based on the liquidation value of the collateral, no specific reserve will be necessary.

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 or the first quarter of 2020.

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 nine months ended March 31, 2020 and 2019 and the year ended June 30, 2019:


	Three Months Ended March 31, 2020
	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 12/31/19	$	10,863	$	99,975	$	22,168	$	116,900	$	80,090	$	809,722	$	86,014	$	36,740	$	1,262,472
Charge-offs		—		(38,726)		—		—		—		—		(5,312)		—		(44,038)
Recoveries		—		—		—		—		—		—		—		—		—
Provision		3,424		337,855		50,991		195,703		14,054		(542,611)		17,729		7,855		85,000
Balance at 3/31/20	$	14,287	$	399,104	$	73,159	$	312,603	$	94,144	$	267,111	$	98,431	$	44,595	$	1,303,434

	Nine Months Ended March 31, 2020
	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		—		(57,572)		—		—		—		—		(45,150)		—		(102,722)
Recoveries		—		5,155		—		—		—		—		22,036		—		27,191
Provision		9,968		383,928		46,529		202,733		32,951		(471,255)		51,487		(171,341)		85,000
Balance at 3/31/20	$	14,287	$	399,104	$	73,159	$	312,603	$	94,144	$	267,111	$	98,431	$	44,595	$	1,303,434

Allowance
Ending balance individually evaluated for impairment	$	—	$	59,000	$	—	$	—	$	77,510	$	—	$	64,283	$	—	$	200,793
Ending balance collectively evaluated for impairment		14,287		340,104		73,159		312,603		16,634		267,111		34,148		44,595		1,102,641
Ending balance	$	14,287	$	399,104	$	73,159	$	312,603	$	94,144	$	267,111	$	98,431	$	44,595	$	1,303,434
Loans
Ending balance individually evaluated for impairment	$	—	$	898,895	$	—	$	—	$	189,702	$	—	$	179,025	$	—	$	1,267,622
Ending balance collectively evaluated for impairment		4,762,278		108,313,308		20,098,726		78,150,768		6,653,717		18,744,604		8,558,398		—		245,281,799
Total loans	$	4,762,278	$	109,212,203	$	20,098,726	$	78,150,768	$	6,843,419	$	18,744,604	$	8,737,423	$	—	$	246,549,421
Less allowance	$	14,287	$	399,104	$	73,159	$	312,603	$	94,144	$	267,111	$	98,431	$	44,595	$	1,303,434
Total loans, net	$	4,747,991	$	108,813,099	$	20,025,567	$	77,838,165	$	6,749,275	$	18,477,493	$	8,638,992	$	(44,595)	$	245,245,987


	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 March 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 12/31/18	$	3,220	$	25,850	$	28,534	$	111,104	$	134,288	$	881,797	$	107,708	$	2,511	$	1,295,012
Charge-offs		—		—		—		—		—		—		(13,599)		—		(13,599)
Recoveries		—		6,327		—		—		—		—		300		—		6,627
Provision		97		34,416		(2,035)		923		(71,633)		(126,924)		(25,526)		190,682		—
Balance at 3/31/19	$	3,317	$	66,593	$	26,499	$	112,027	$	62,655	$	754,873	$	68,883	$	193,193	$	1,288,040

	Nine Months Ended March 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 6/30/18	$	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		—		23,110		—		—		—		—		1,114		—		24,224
Provision		(1,441)		36,183		(20)		40,926		(69,251)		(170,482)		(14,518)		178,603		—
Balance at 3/31/19	$	3,317	$	66,593	$	26,499	$	112,027	$	62,655	$	754,873	$	68,883	$	193,193	$	1,288,040

Allowance
Ending balance individually evaluated for impairment	$	—	$	5,325	$	—	$	—	$	45,768	$	—	$	56,397	$	—	$	107,490
Ending balance collectively evaluated for impairment		3,317		61,268		26,499		112,027		16,887		754,873		12,486		193,193		1,180,550
Ending balance	$	3,317	$	66,593	$	26,499	$	112,027	$	62,655	$	754,873	$	68,883	$	193,193	$	1,288,040
Loans

Ending balance individually evaluated for impairment	$	—	$	970,145	$	—	$	—	$	196,135	$	—	$	124,021	$	—	$	1,290,301
Ending balance collectively evaluated for impairment		3,316,605		122,535,797		21,031,234		74,684,437		8,443,494		20,904,832		10,319,103		—		261,235,502
Total loans	$	3,316,605	$	123,505,942	$	21,031,234	$	74,684,437	$	8,639,629	$	20,904,832	$	10,443,124	$	—	$	262,525,803
Less allowance	$	3,317	$	66,593	$	26,499	$	112,027	$	62,655	$	754,873	$	68,883	$	193,193	$	1,288,040
Total loans, net	$	3,313,288	$	123,439,349	$	21,004,735	$	74,572,410	$	8,576,974	$	20,149,959	$	10,374,241	$	(193,193)	$	261,237,763