Loans and Allowance for Loan Losses

3 Months Ended

Sep. 30, 2022

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 4:Loans and Allowance for Loan Losses

Categories of loans at September 30, 2022 and June 30, 2022 include:

	September 30,		June 30,
	2022		2022
		(Unaudited)
Real estate loans:
Commercial	$	4,972,791	$	5,136,407
Residential		66,123,917		65,638,154
Multifamily		711,402		718,911
Agricultural		4,015,564		3,450,672
Construction and land		5,517,796		6,006,613
Home equity line of credit (HELOC)		494,128		264,421
Commercial and industrial		301,945		339,094
Consumer		785,094		713,323
Total loans		82,922,637		82,267,595
Less:
Undisbursed loans in process		3,589,117		4,324,320
Net deferred loan fees		12,488		10,203
Allowance for loan losses		222,884		222,884
Net loans	$	79,098,148	$	77,710,188

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three months ended September 30, 2022 and 2021.

	Balance		Provision (credit)						Balance
	June 30, 2022		for loan losses		Charge-offs		Recoveries		September 30, 2022
	(Unaudited)
Real estate loans:
Commercial	$	20,643	$	(949)	$	—	$	—	$	19,694
Residential		177,830		(2,090)		—		—		175,740
Multifamily		1,926		(47)		—		—		1,879
Agricultural		13,868		2,036		—		—		15,904
Construction and land		5,477		610		—		—		6,087
HELOC		1,306		(110)		—		—		1,196
Commercial and industrial		709		595		—		—		1,304
Consumer		1,125		(45)		—		—		1,080
Total	$	222,884	$	—	$	—	$	—	$	222,884

	Balance		Provision (credit)						Balance
	June 30, 2021		for loan losses		Charge-offs		Recoveries		September 30, 2021
	(Unaudited)
Real estate loans:
Commercial	$	27,506	$	(1,341)	$	—	$	—	$	26,165
Residential		176,498		(4,057)		—		—		172,441
Multifamily		—		—		—		—		—
Agricultural		8,334		3,519		—		—		11,853
Construction and land		7,723		2,042		—		—		9,765
HELOC		577		676		—		—		1,253
Commercial and industrial		1,437		(782)		—		—		655
Consumer		809		(57)		—		—		752
Total	$	222,884	$	—	$	—	$	—	$	222,884

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2022 and June 30, 2022:

	Allowance for loan losses				Loans
	Ending balance, evaluated for impairment				Ending balance, evaluated for impairment
	Individually		Collectively		Individually		Collectively
	(Unaudited)
September 30, 2022
Real estate loans:
Commercial	$	—	$	19,694	$	—	$	4,972,791
Residential		2,070		173,670		278,188		65,845,729
Multifamily		—		1,879		—		711,402
Agricultural		—		15,904		—		4,015,564
Construction and land		—		6,087		—		5,517,796
HELOC		—		1,196		—		494,128
Commercial and industrial		—		1,304		—		301,945
Consumer		—		1,080		—		785,094
Total	$	2,070	$	220,814	$	278,188	$	82,644,450

	Allowance for loan losses				Loans
	Ending balance, evaluated for impairment				Ending balance, evaluated for impairment
	Individually		Collectively		Individually		Collectively
June 30, 2022
Real estate loans:
Commercial	$	—	$	20,643	$	—	$	5,136,407
Residential		2,734		175,096		359,263		65,278,891
Multifamily		—		1,926		—		718,911
Agricultural		—		13,868		—		3,450,672
Construction and land		—		5477		—		6,006,613
HELOC		—		1,306		—		264,421
Commercial and industrial		—		709		—		339,094
Consumer		—		1,125		—		713,323
Total	$	2,734	$	220,150	$	359,263	$	81,908,332

The Company has adopted a standard loan grading system for all loans. Loan grades are numbered 1 through 8. Grades 1 through 3 are considered satisfactory grades. The grade of 4, Monitor, represents loans requiring more than normal attention. The grade of 5, Special Mention, represents loans of lower quality and is considered criticized. The grades of 6, or Substandard, and 7, Doubtful, refer to loans that are classified.

Pass (1-3) Loans of reasonable credit strength and repayment ability providing a satisfactory credit risk.

Monitor (4) Loans requiring more than normal attention resulting from underwriting weaknesses as to repayment terms, loan structure, financial and/or documentation exceptions.

Special Mention (5) Loans which may include the characteristics of the Monitor classification, problems that need to be addresses by both the lender and the borrower.

Substandard (6) Loans which may include the characteristics of the Special Mention classification, but also reflects financial and other problems that might result in some loss at a future date and/or reliance upon collateral for ultimate collection.

Doubtful (7) Loans for which some loss is anticipated, but the timing and amount of the loss is not definite.

Loss (8) Loans considered non-bankable assets which may or may not have some salvage value.

Risk characteristics of each loan portfolio segment are described as follows:

Commercial Real Estate

These loans include commercial real estate and residential real estate secured by property with five or more units. The main risks are changes in the value of the collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Residential Real Estate

These loans include first liens and junior liens on 1-4 family residential real estate (both owner and non-owner occupied). The main risks for these loans are changes in the value of the collateral and stability of the local economic environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Multifamily

These loans include loans on residential real estate secured by property with five or more units. The main risks are changes in the value of collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Agriculture Real Estate

These loans include loans on farm ground, vacant land for development and loans on commercial real estate. The main risks are changes in the value of the collateral and changes in the economy or borrowers’ business operations. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Construction and Land Real Estate

These loans include construction loans for 1-4 family residential and commercial properties (both owner and non-owner occupied) and first liens on land. The main risks for construction loans include uncertainties in estimating costs of construction and in estimating the market value of the completed project. The main risks for land loans are changes in the value of the collateral and stability of the local economic environment. Management specifically considers unemployment and changes in real estate values in the Company's market area.

HELOC

These loans are generally secured by owner-occupied 1-4 family residences. The main risks for these loans are changes in the value of the collateral and stability of the local economic environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area.

Commercial and Industrial

The commercial and industrial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of the borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer Loans

These loans include vehicle loans, share loans and unsecured loans. The main risks for these loans are the depreciation of the collateral values (vehicles) and the financial condition of the borrowers. Major employment changes are specifically considered by management.

Information regarding the credit quality indicators most closely monitored for other than residential real estate loans by class as of September 30, 2022 and June 30, 2022 follows:

					Special
	Pass		Monitor		Mention		Substandard		Doubtful		Total
September 30, 2022 (Unaudited)
Real estate loans:
Commercial	$	4,807,602	$	165,189	$	—	$	—	$	—	$	4,972,791
Multifamily		711,402		—		—		—		—		711,402
Agricultural		3,777,063		238,501		—		—		—		4,015,564
Construction and land		74,184		5,404,080		—		39,533		—		5,517,796
Commercial and industrial		301,945		—		—		—		—		301,945
Consumer		785,094		—		—		—		—		785,094
Total loans	$	10,457,290	$	5,807,770	$	—	$	39,533	$	—	$	16,304,593
June 30, 2022
Real estate loans:
Commercial	$	4,963,148	$	173,259	$	—	$	—	$	—	$	5,136,407
Multifamily		718,911		—		—		—		—		718,911
Agricultural		3,212,171		238,501		—		—		—		3,450,672
Construction and land		79,160		5,887,572		—		39,881		—		6,006,613
Commercial and industrial		304,607		34,487		—		—		—		339,094
Consumer		713,323		—		—		—		—		713,323
Total loans	$	9,991,320	$	6,333,819	$	—	$	39,881	$	—	$	16,365,020

The following tables present the credit risk profile of the Company’s residential real estate loan portfolio based on internal rating category and payment activity as of September 30, 2022 and June 30, 2022:

	Performing		Nonperforming		Total
September 30, 2022	(Unaudited)
Real estate loans:
Residential	$	65,900,320	$	223,597	$	66,123,917
HELOC		494,128		—		494,128
Total	$	66,394,448	$	223,597	$	66,618,045

	Performing		Nonperforming		Total
June 30, 2022
Real estate loans:
Residential	$	65,412,572	$	225,582	$	65,638,154
HELOC		264,421		—		264,421
Total	$	65,676,993	$	225,582	$	65,902,575

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the past year.

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of September 30, 2022 and June 30, 2022:

	September 30, 2022
					Greater Than								Total Loans >
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		90 Days &
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing
	(Unaudited)
Real estate loans:
Commercial	$	—	$	—	$	—	$	—	$	4,972,791	$	4,972,791	$	—
Residential		—		76,674		98,361		175,035		65,948,882		66,123,917		54,591
Multifamily		—		—		—		—		711,402		711,402		—
Agricultural		—		—		—		—		4,015,564		4,015,564		—
Construction and land		—		—		—		—		5,517,796		5,517,796		—
HELOC		—		—		—		—		494,128		494,128		—
Commercial and industrial		—		—		—		—		301,945		301,945		—
Consumer		—		—		—		—		785,094		785,094		—
Total	$	—	$	76,674	$	98,361	$	175,035	$	82,747,602	$	82,922,637	$	54,591

	June 30, 2022
					Greater Than								Total Loans >
	30-59 Days		60-89 Days		90 Days		Total				Total Loans		90 Days &
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing
Real estate loans:
Commercial	$	—	$	—	$	—	$	—	$	5,136,407	$	5,136,407	$	—
Residential		—		89,856		217,019		306,875		65,331,279		65,638,154		133,681
Multifamily		—		—		—		—		718,911		718,911		—
Agricultural		—		—		—		—		3,450,672		3,450,672		—
Construction and land		—		—		—		—		6,006,613		6,006,613		—
HELOC		—		—		—		—		264,421		264,421		—
Commercial and industrial		—		—		—		—		339,094		339,094		—
Consumer		—		—		—		—		713,323		713,323		—
Total	$	—	$	89,856	$	217,019	$	306,875	$	81,960,720	$	82,267,595	$	133,681

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Information on impaired loans as of and for the three months ended September 30, 2022 and for the year ended June 30, 2022 is as follows.

	As of  September 30, 2022
			Unpaid				Average Balance of		Interest
	Recorded		Principal		Specific		Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized
	(Unaudited)
Loans without a specific valuation allowance:
Real estate
Residential	$	215,793	$	215,793	$	—	$	216,488	$	2,655
Loans with a specific valuation allowance:
Real estate
Residential		62,395		62,395		2,070		62,712		1,045
Totals	$	278,188	$	278,188	$	2,070	$	279,200	$	3,700

	As of and for the year ended June 30, 2022
			Unpaid				Average Balance of		Interest
	Recorded		Principal		Specific		Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized
Loans without a specific valuation allowance:
Real estate
Residential	$	296,204	$	296,204	$	—	$	301,041	$	6,005
Loans with a specific valuation allowance:
Real estate
Residential		63,059		63,059		2,734		64,319		4,028
Totals	$	359,263	$	359,263	$	2,734	$	365,360	$	10,033

Nonaccrual loans as of September 30, 2022 and June 30, 2022 are as follows:

	September 30,		June 30,
	2022		2022
		(Unaudited)
Residential real estate loans	$	223,597	$	225,582

There were no significant loans modified in a troubled debt restructuring during the three months ended September 30, 2022 and 2021, or for the year ended June 30, 2022. There were no troubled debt restructurings modified in the past 12 months that subsequently defaulted for the three months ended September 30, 2022 or for the year ended June 30, 2022.