NOTE 7 – Loans and Allowance for Loan Losses

Major classifications of loans are as follows:


	September 30, 2020		June 30, 2020
Construction, land, development	$	3,619,835	$	4,598,382
1-4 family owner occupied		92,578,159		100,506,311
1-4 family non-owner occupied		20,831,506		21,213,680
Multifamily		82,503,675		76,444,156
Commercial owner occupied		6,588,790		6,733,183
Commercial non-owner occupied		20,620,785		20,237,534
Consumer and installment loans		7,523,341		8,920,659

Total loans		234,266,091		238,653,905
Less:
Allowance for loan losses		(1,353,484)		(1,353,427)

Loans, net	$	232,912,607	$	237,300,478

In the table above, outstanding loan balances are presented net of deferred loan origination fees of $170,000 at September 30, 2020 and $184,000 at June 30, 2020.

Non-performing loans are as follows:


	September 30, 2020		June 30, 2020
Nonaccrual Loans	$	1,270,695	$	1,341,174
Total non-performing loans	$	1,270,695	$	1,341,174

Restructured loans, accruing	$	—	$	—
Total impaired loans	$	1,270,695	$	1,341,174

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


	September 30, 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	$	—	$	162,455	$	—	$	—	$	173,316	$	—	$	102,036	$	437,807
Unpaid principal balance		—		162,455		—		—		173,316		—		102,036		437,807
Related allowance		—		66,048		—		—		54,334		—		60,155		180,537

With no related allowance recorded
Recorded investment	$	—	$	802,514	$		$	—	$	—	$	—	$	30,374	$	832,888
Unpaid principal balance		—		802,514				—		—		—		30,374		832,888
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	964,969	$	—	$	—	$	173,316	$	—	$	132,410	$	1,270,695
Unpaid principal balance		—		964,969		—		—		173,316		—		132,410		1,270,695
Related allowance		—		66,048		—		—		54,334		—		60,155		180,537

	Three Months Ended September 30, 2020
Average recorded balance	$	—	$	965,118	$	14,393	$	—	$	180,082	$	—	$	130,309	$	1,289,902
																—
Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		3,388		—		—		11,451		—		—		14,839
Total interest on impaired loans	$	—	$	3,388	$	—	$	—	$	11,451	$	—	$	—	$	14,839


	June 30, 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	$	—	$	161,931	$	—	$	—	$	189,249	$	—	$	103,673	$	454,853
Unpaid principal balance		—		161,931		—		—		189,249		—		103,673		454,853
Related allowance		—		64,780		—		—		79,351		—		61,792		205,923

With no related allowance recorded
Recorded investment	$	—	$	803,803	$	57,574	$	—	$	—	$	—	$	24,944	$	886,321
Unpaid principal balance		—		803,803		57,574		—		—		—		24,944		886,321
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	965,734	$	57,574	$	—	$	189,249	$	—	$	128,617	$	1,341,174
Unpaid principal balance		—		965,734		57,574		—		189,249		—		128,617		1,341,174
Related allowance		—		64,780		—		—		79,351		—		61,792		205,923

Average recorded balance	$	—	$	1,020,175	$	14,948	$	—	$	191,166	$	—	$	132,521	$	1,358,810

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		16,071		298		—		4,382		—		712		21,463
Total interest on impaired loans	$	—	$	16,071	$	298	$	—	$	4,382	$	—	$	712	$	21,463


	September 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	$	—	$	—	$	—	$	—	$	192,285	$	—	$	112,146	$	304,431
Unpaid principal balance		—		—		—		—		192,285		—		112,146		304,431
Related allowance		—		—		—		—		74,737		—		61,379		136,116

With no related allowance recorded
Recorded investment	$	—	$	892,031	$	—	$	—	$	—	$	—	$	—	$	892,031
Unpaid principal balance		—		892,031		—		—		—		—		—		892,031
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	892,031	$	—	$	—	$	192,285	$	—	$	112,146	$	1,196,462
Unpaid principal balance		—		892,031		—		—		192,285		—		112,146		1,196,462
Related allowance		—		—		—		—		74,737		—		61,379		136,116

	Three Months Ended September 30, 2019
Average recorded balance	$	—	$	1,219,643	$	4,951	$	—	$	192,936	$	—	$	121,765	$	1,539,295

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		4,792		298		—		3,303		—		—		8,393
Total interest in impaired loans	$	—	$	4,792	$	298	$	—	$	3,303	$	—	$	—	$	8,393

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:


	September 30, 2020
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
			Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
1-4	$	3,619,835	$	91,371,716	$	20,831,506	$	82,503,675	$	5,257,598	$	12,761,112	$	7,390,931	$	223,736,373
5		—		241,474		—		—		1,157,876		7,859,673		—		9,259,023
6		—		591,117		—		—		173,316		—		56,242		820,675
7		—		373,852		—		—		—		—		76,168		450,020
Total	$	3,619,835	$	92,578,159	$	20,831,506	$	82,503,675	$	6,588,790	$	20,620,785	$	7,523,341	$	234,266,091


	June 30, 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	$	4,598,382	$	99,344,653	$	21,156,106	$	76,444,156	$	6,543,934	$	12,313,923	$	8,792,042	$	229,193,196
5		—		195,924		—		—		—		7,923,611		—		8,119,535
6		—		851,208		57,574		—		189,249		—		52,448		1,150,479
7		—		114,526		—		—		—		—		76,169		190,695
Total	$	4,598,382	$	100,506,311	$	21,213,680	$	76,444,156	$	6,733,183	$	20,237,534	$	8,920,659	$	238,653,905

The following is a summary of past due loans:


	September 30, 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	$	—	$	1,743,094	$	42,100	$	—	$	—	$	—	$	—	$	1,785,194
60‑89 days, accruing		—		—		—		—		—		—		—		—
90 days & over or nonaccrual		—		964,969		—		—		173,316		—		132,410		1,270,695
Total	$	—	$	2,708,063	$	42,100	$	—	$	173,316	$	—	$	132,410	$	3,055,889


	June 30, 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	$	69,174	$	1,274,585	$	—	$	—	$	—	$	—	$	63,765	$	1,407,524
60‑89 days, accruing		—		114,338		—		—		—		—		—		114,338
90 days & over or nonaccrual		—		965,734		57,574		—		189,249		—		128,617		1,341,174
Total	$	69,174	$	2,354,657	$	57,574	$	—	$	189,249	$	—	$	192,382	$	2,863,036

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 was one new TDR during the three months ending September 30, 2020, totaling $47,853. There were no TDRs that defaulted during the period that were modified within the previous three months as of September 30, 2020. There were two TDRs as of September 30, 2020 and one TDR as of June 30, 2020. As discussed within 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 prior to September 30, 2020, two loans totaling $241,474 did not qualify for the favorable accounting treatment under Section 4013 of the CARES Act and therefore are reported as TDRs. Management has evaluated the loans and determined that based on the liquidation value of the collateral, no specific reserve is 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 the three months ended September 30, 2020.

The following is a summary of TDRs as of September 30, 2020:


	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer &
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
Accruing
Beginning balance	$	—	$	195,924	$	—	$	—	$	—	$		$	—	$	195,924
Transfer to other loan category		—		—		—		—		—		—		—		—
Principal payments		—		(2,304)		—		—		—		—		—		(2,304)
Charge-offs		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
New restructureds		—		47,854		—		—		—		—		—		47,854
Transfers out of TDR status		—		—		—		—		—				—		—
Transfers to foreclosed properties		—		—		—		—		—		—		—		—
Transfers to nonaccrual		—		—		—		—		—		—		—		—
Transfers out of nonaccrual		—		—		—		—		—		—		—		—
Ending balance	$	—	$	241,474	$	—	$	—	$	—	$	—	$	—	$	241,474

Nonaccrual
Beginning balance	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Principal payments		—		—		—		—		—		—		—		—
Charge-offs		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
Transfers to foreclosed properties		—		—		—		—		—		—		—		—
Transfers from accrual		—		—		—		—		—		—		—		—
Transfers to accrual		—		—		—		—		—		—		—		—
Ending balance	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Totals
Beginning balance	$	—	$	195,924	$	—	$	—	$	—	$		$	—	$	195,924
Transfer to other loan category		—		—		—		—		—		—		—		—
Principal payments		—		(2,304)		—		—		—		—		—		(2,304)
Charge-offs		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
New restructureds		—		47,854		—		—		—		—		—		47,854
Transfers out of TDR status		—		—		—		—		—				—		—
Transfers to foreclosed properties		—		—		—		—		—		—		—		—
Transfers to nonaccrual		—		—		—		—		—		—		—		—
Transfers from accrual		—		—		—		—		—		—		—		—
Transfers out of nonaccrual		—		—		—		—		—		—		—		—
Ending balance	$	—	$	241,474	$	—	$	—	$	—	$	—	$	—	$	241,474

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 months ended September 30, 2020 and 2019 and the year ended June 30, 2020:


	Three Months Ended September 30, 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 6/30/20	$	13,795	$	356,434	$	77,220	$	286,665	$	95,711	$	312,670	$	97,312	$	113,620	$	1,353,427
Charge-offs		—		—		—		—		—		—		(325)		—		(325)
Recoveries		—		—		—		—		—		—		382		—		382
Provision		(2,936)		(21,043)		(1,393)		63,976		(20,527)		16,232		(7,428)		(26,881)		—
Balance at 9/30/20	$	10,859	$	335,391	$	75,827	$	350,641	$	75,184	$	328,902	$	89,941	$	86,739	$	1,353,484

Allowance
Ending balance individually evaluated for impairment	$	—	$	66,048	$	—	$	—	$	54,334	$	—	$	60,155	$	—	$	180,537
Ending balance collectively evaluated for impairment		10,859		269,343		75,827		350,641		20,850		328,902		29,786		86,739		1,172,947
Ending balance	$	10,859	$	335,391	$	75,827	$	350,641	$	75,184	$	328,902	$	89,941	$	86,739	$	1,353,484
Loans
Ending balance individually evaluated for impairment	$	—	$	964,969	$	—	$	—	$	173,316	$	—	$	132,410	$	—	$	1,270,695
Ending balance collectively evaluated for impairment		3,619,835		91,613,190		20,831,506		82,503,675		6,415,474		20,620,785		7,390,931		—		232,995,396
Total loans	$	3,619,835	$	92,578,159	$	20,831,506	$	82,503,675	$	6,588,790	$	20,620,785	$	7,523,341	$	—	$	234,266,091
Less allowance	$	10,859	$	335,391	$	75,827	$	350,641	$	75,184	$	328,902	$	89,941	$	86,739	$	1,353,484
Total loans, net	$	3,608,976	$	92,242,768	$	20,755,679	$	82,153,034	$	6,513,606	$	20,291,883	$	7,433,400	$	(86,739)	$	232,912,607


	June 30, 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)		—		—		—		—		(45,157)		—		(102,729)
Recoveries		—		5,155		—		—		—		—		22,036		—		27,191
Provision		9,476		341,258		50,590		176,795		34,518		(425,696)		50,375		(102,316)		135,000
Balance at 9/30/19	$	13,795	$	356,434	$	77,220	$	286,665	$	95,711	$	312,670	$	97,312	$	113,620	$	1,353,427

Allowance
Ending balance individually evaluated for impairment	$	—	$	64,780	$	—	$	—	$	79,351	$	—	$	61,792	$	—	$	205,923
Ending balance collectively evaluated for impairment		13,795		291,654		77,220		286,665		16,360		312,670		35,520		113,620		1,147,504
Ending balance	$	13,795	$	356,434	$	77,220	$	286,665	$	95,711	$	312,670	$	97,312	$	113,620	$	1,353,427
Loans

Ending balance individually evaluated for impairment	$	—	$	965,734	$	57,574	$	—	$	189,249	$	—	$	128,617	$	—	$	1,341,174
Ending balance collectively evaluated for impairment		4,598,382		99,540,577		21,156,106		76,444,156		6,543,934		20,237,534		8,792,042		—		237,312,731
Total loans	$	4,598,382	$	100,506,311	$	21,213,680	$	76,444,156	$	6,733,183	$	20,237,534	$	8,920,659	$	—	$	238,653,905
Less allowance	$	13,795	$	356,434	$	77,220	$	286,665	$	95,711	$	312,670	$	97,312	$	113,620	$	1,353,427
Total loans, net	$	4,584,587	$	100,149,877	$	21,136,460	$	76,157,491	$	6,637,472	$	19,924,864	$	8,823,347	$	(113,620)	$	237,300,478


	Three Months Ended September 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	$	4,319	$	67,593	$	26,630	$	109,870	$	61,193	$	738,366	$	70,058	$	215,936	$	1,293,965
Charge-offs		—		—		—		—		—		—		(7,826)		—		(7,826)
Recoveries		—		335		—		—		—		—		200		—		535
Provision		1,351		(11,124)		(603)		1,242		29,884		34,820		10,076		(65,646)		—
Balance at 3/31/19	$	5,670	$	56,804	$	26,027	$	111,112	$	91,077	$	773,186	$	72,508	$	150,290	$	1,286,674

Allowance
Ending balance individually evaluated for impairment	$	—	$	—	$	—	$	—	$	74,737	$	—	$	61,379	$	—	$	136,116
Ending balance collectively evaluated for impairment		5,670		56,804		26,027		111,112		16,340		773,186		11,129		150,290		1,150,558
Ending balance	$	5,670	$	56,804	$	26,027	$	111,112	$	91,077	$	773,186	$	72,508	$	150,290	$	1,286,674
Loans

Ending balance individually evaluated for impairment	$	—	$	892,031	$	—	$	—	$	192,285	$	—	$	112,146	$	—	$	1,196,462
Ending balance collectively evaluated for impairment		5,670,043		113,611,576		20,493,732		74,074,709		8,170,283		19,604,096		9,593,664		—		251,218,103
Total loans	$	5,670,043	$	114,503,607	$	20,493,732	$	74,074,709	$	8,362,568	$	19,604,096	$	9,705,810	$	—	$	252,414,565
Less allowance	$	5,670	$	56,804	$	26,027	$	111,112	$	91,077	$	773,186	$	72,508	$	150,290	$	1,286,674
Total loans, net	$	5,664,373	$	114,446,803	$	20,467,705	$	73,963,597	$	8,271,491	$	18,830,910	$	9,633,302	$	(150,290)	$	251,127,891