During the second quarter of 2020, as a qualified U.S. Small Business Administration’s (“SBA”) lender, the Company was automatically authorized to participate in the SBA Paycheck Protection Program (“PPP”). As of June 30, 2020, the Bank had funded PPP loans totaling $73.1 million.


	June 30, 2020		December 31, 2019
Real estate loans:
One-to-four family	$	137,988	$	149,393
Home equity	19,286		23,845
Commercial and multifamily	273,084		261,268
Construction and land	76,089		75,756
Total real estate loans	506,447		510,262
Consumer loans:
Manufactured homes	21,227		20,613
Floating homes	46,256		43,799
Other consumer	10,585		8,302
Total consumer loans	78,068		72,714
Commercial business loans	109,719		38,931
Total loans held-for-portfolio	694,234		621,907
Deferred fees	(3,531)		(2,020)
Total loans held-for-portfolio, gross	690,703		619,887
Allowance for loan losses	(6,031)		(5,640)
Total loans held-for-portfolio, net	$	684,672	$	614,247


	Allowance: Individually evaluated for impairment		Allowance: Collectively evaluated for impairment		Allowance: Ending balance		Loans held for investment: Individually evaluated for impairment		Loans held for investment: Collectively evaluated for impairment		Loans held for investment: Ending balance

One-to-four family	$	199	$	950	$	1,149	$	5,994	$	131,994	$	137,988
Home equity	19		135		154		378		18,908		19,286
Commercial and multifamily	—		1,991		1,991		353		272,731		273,084
Construction and land	6		617		623		38		76,051		76,089
Manufactured homes	214		148		362		365		20,862		21,227
Floating homes	—		324		324		282		45,974		46,256
Other consumer	49		78		127		136		10,449		10,585
Commercial business	242		259		501		1,533		108,186		109,719
Unallocated	—		800		800		—		—		—
	$	729	$	5,302	$	6,031	$	9,079	$	685,155	$	694,234


	Allowance: Individually evaluated for impairment		Allowance: Collectively evaluated for impairment		Allowance: Ending balance		Loans held for investment: Individually evaluated for impairment		Loans held for investment: Collectively evaluated for impairment		Loans held for investment: Ending balance

One-to-four family	$	205	$	915	$	1,120	$	8,620	$	140,773	$	149,393
Home equity	25		153		178		335		23,510		23,845
Commercial and multifamily	—		1,696		1,696		353		260,915		261,268
Construction and land	7		485		492		1,215		74,541		75,756
Manufactured homes	349		131		480		440		20,173		20,613
Floating homes	—		283		283		290		43,509		43,799
Other consumer	54		58		112		143		8,159		8,302
Commercial business	84		247		331		997		37,934		38,931
Unallocated	—		948		948		—		—		—
Total	$	724	$	4,916	$	5,640	$	12,393	$	609,514	$	621,907


	Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,129	$	—	$	4	$	16	$	1,149
Home equity	166		—		37		(49)		154
Commercial and multifamily	1,918		—		—		73		1,991
Construction and land	499		—		—		124		623
Manufactured homes	482		—		—		(120)		362
Floating homes	318		—		—		6		324
Other consumer	121		(11)		8		9		127
Commercial business	395		(300)		—		406		501
Unallocated	865		—		—		(65)		800
Total	$	5,893	$	(311)	$	49	$	400	$	6,031


	Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,120	$	—	$	8	$	21	$	1,149
Home equity	178		—		39		(63)		154
Commercial and multifamily	1,696		—		—		295		1,991
Construction and land	492		—		—		131		623
Manufactured homes	480		—		—		(118)		362
Floating homes	283		—		—		41		324
Other consumer	112		(17)		11		21		127
Commercial business	331		(300)		—		470		501
Unallocated	948		—		—		(148)		800
Total	$	5,640	$	(317)	$	58	$	650	$	6,031


	Beginning Allowance		Charge-offs		Recoveries		(Recapture) Provision		Ending Allowance
One-to-four family	$	1,189	$	—	$	—	$	(50)	$	1,139
Home equity	229		—		4		(68)		165
Commercial and multifamily	1,035		—		—		432		1,467
Construction and land	996		—		—		(532)		464
Manufactured homes	511		—		—		(48)		463
Floating homes	254		—		—		8		262
Other consumer	120		(12)		—		12		120
Commercial business	424		—		1		84		509
Unallocated	819		—		—		(38)		781
Total	$	5,577	$	(12)	$	5	$	(200)	$	5,370


	Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,314	$	—	$	—	$	(175)	$	1,139
Home equity	202		—		7		(44)		165
Commercial and multifamily	1,638		—		—		(171)		1,467
Construction and land	431		—		—		33		464
Manufactured homes	427		—		—		36		463
Floating homes	265		—		—		(3)		262
Other consumer	112		(32)		20		20		120
Commercial business	356		—		1		152		509
Unallocated	1,029		—		—		(248)		781
Total	$	5,774	$	(32)	$	28	$	(400)	$	5,370

Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in assets classified substandard with the added characteristic that the weaknesses make collection or liquidation of the assets in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without establishment of a specific loss reserve is not warranted.

When we classify problem loans as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired). General allowances represent loss reserves which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem loans. When the Company classifies problem loans as a loss, we charge-off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss, but possess identified weaknesses, are classified as either watch or special mention assets. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation, the Bank’s federal regulator, and the Washington Department of Financial Institutions, the Bank’s state banking regulator, both of whom can order the establishment of additional loss allowances. Pass rated loans are loans that are not otherwise classified or criticized.


	One-to- four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Grade:
Pass	$	118,686	$	17,920	$	231,980	$	25,788	$	19,966	$	45,725	$	10,542	$	105,242	$	575,849
Watch	14,470		735		31,262		42,989		1,030		—		—		1,159		91,645
Special Mention	—		—		4,950		7,263		—		—		—		519		12,732
Substandard	4,832		631		4,892		49		231		531		43		2,799		14,008
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	137,988	$	19,286	$	273,084	$	76,089	$	21,227	$	46,256	$	10,585	$	109,719	$	694,234


	One-to- four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Grade:
Pass	$	138,900	$	23,206	$	256,139	$	68,268	$	20,204	$	43,509	$	8,250	$	35,347	$	593,823
Watch	—		—		217		2,634		124		—		—		378		3,353
Special Mention	2,484		—		2,178		3,677		—		—		—		1,649		9,988
Substandard	8,009		639		2,734		1,177		285		290		52		1,557		14,743
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	149,393	$	23,845	$	261,268	$	75,756	$	20,613	$	43,799	$	8,302	$	38,931	$	621,907

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual once the loan is 90 days past due or sooner if, in management’s opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions. Loans are not placed on nonaccrual for short-term loan modifications made in response to the COVID-19 pandemic.


	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		> 90 Days and Accruing		Total Past Due		Current		Total Loans
One-to-four family	$	161	$	44	$	1,669	$	—	$	1,874	$	136,114	$	137,988
Home equity	170		2		222		—		394		18,892		19,286
Commercial and multifamily	—		—		353		—		353		272,731		273,084
Construction and land	—		—		—		—		—		76,089		76,089
Manufactured homes	85		54		117		—		256		20,971		21,227
Floating homes	—		249		282		—		531		45,725		46,256
Other consumer	2		1		—		—		3		10,582		10,585
Commercial business	—		675		162		—		837		108,882		109,719
Total	$	418	$	1,025	$	2,805	$	—	$	4,248	$	689,986	$	694,234


	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		> 90 Days and Accruing		Total Past Due		Current		Total Loans
One-to-four family	$	789	$	105	$	1,810	$	—	$	2,704	$	146,689	$	149,393
Home equity	81		161		197		—		439		23,406		23,845
Commercial and multifamily	1,742		—		353		—		2,095		259,173		261,268
Construction and land	3,340		1,100		50		—		4,490		71,266		75,756
Manufactured homes	324		43		125		—		492		20,121		20,613
Floating homes	297		250		290		—		837		42,962		43,799
Other consumer	19		2		—		—		21		8,281		8,302
Commercial business	226		—		162		—		388		38,543		38,931
Total	$	6,818	$	1,661	$	2,987	$	—	$	11,466	$	610,441	$	621,907


	One-to-four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Performing	$	136,318	$	19,064	$	272,732	$	76,089	$	21,110	$	45,974	$	10,585	$	108,882	$	690,754
Nonperforming	1,670		222		352		—		117		282		—		837		3,480
Total	$	137,988	$	19,286	$	273,084	$	76,089	$	21,227	$	46,256	$	10,585	$	109,719	$	694,234


	One-to-four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Performing	$	147,303	$	23,584	$	260,915	$	74,579	$	20,387	$	43,509	$	8,302	$	38,671	$	617,250
Nonperforming	2,090		261		353		1,177		226		290		—		260		4,657
Total	$	149,393	$	23,845	$	261,268	$	75,756	$	20,613	$	43,799	$	8,302	$	38,931	$	621,907

Impaired Loans. A loan is considered impaired when we determine that we may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, we take into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history. Impairment is measured on a loan by loan basis for all loans in the portfolio. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.


	June 30, 2020
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Total Recorded Investment		Related Allowance
One-to-four family	$	6,114	$	4,463	$	1,531	$	5,994	$	199
Home equity	378		233		145		378		19
Commercial and multifamily	353		353		—		353		—
Construction and land	38		—		38		38		6
Manufactured homes	371		103		262		365		214
Floating homes	282		282		—		282		—
Other consumer	136		—		136		136		49
Commercial business	1,834		714		819		1,533		242
Total	$	9,506	$	6,148	$	2,931	$	9,079	$	729


	December 31, 2019
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Total Recorded Investment		Related Allowance
One-to-four family	$	8,748	$	7,236	$	1,384	$	8,620	$	205
Home equity	335		256		79		335		25
Commercial and multifamily	353		353		—		353		—
Construction and land	1,215		1,177		38		1,215		7
Manufactured homes	445		46		394		440		349
Floating homes	290		290		—		290		—
Other consumer	143		—		143		143		54
Commercial business	997		714		283		997		84
Total	$	12,526	$	10,072	$	2,321	$	12,393	$	724


	Three Months Ended June 30, 2020						Three Months Ended June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
One-to-four family	$	5,961	$	74	$	2,536	$	61
Home equity	368		4		549		9
Commercial and multifamily	353		5		585		8
Construction and land	255		(13)		124		2
Manufactured homes	396		6		475		18
Floating homes	403		—		—		—
Other consumer	138		2		158		5
Commercial business	1,542		18		933		19
Total	$	9,416	$	96	$	5,360	$	122


	Six Months Ended June 30, 2020						Six Months Ended June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
One-to-four family	$	6,847	$	147	$	3,590	$	99
Home equity	357		9		682		15
Commercial and multifamily	353		10		1,607		15
Construction and land	575		1		424		4
Manufactured homes	411		15		431		28
Floating homes	366		8		—		—
Other consumer	139		4		163		8
Commercial business	1,360		41		1,274		37
Total	$	10,408	$	235	$	8,171	$	206

Forgone interest on nonaccrual loans was $109,000 and $91,000 for the six months ended June 30, 2020 and 2019, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at June 30, 2020 and December 31, 2019.

Troubled debt restructurings. TDRs are accounted for under ASC 310-40, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a lower interest rate, a reduction in principal, or a longer term to maturity. Once a TDR has performed according to its modified terms for six months and the collection of principal and interest under the revised terms is deemed probable, we remove the TDR from nonperforming status. Loans classified as TDRs totaled $5.7 million and $7.9 million at June 30, 2020 and December 31, 2019, respectively, and are included in impaired loans. The Company has granted, in its TDRs, a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:

There was one loan totaling $431,000 modified as a TDR during the three months ended June 30, 2020 and three loans totaling $649,000 modified as TDRs during the six months ended June 30, 2020. There was one TDR loan totaling $2.8 million paid-off during the six months ended June 30, 2020. There were no loans modified as TDRs during the three and six months ended June 30, 2019. Two TDR loans totaling $40,000 were paid off during the three months ended June 30, 2019, and three TDR loans totaling $145,000 were paid-off during the six months ended June 30, 2019.

There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the three and six months ended June 30, 2020 and 2019. There was one loan totaling $161,000 modified as a TDR for which there was a payment default within the first 12 months of modification during the six months ended June 30, 2020. During the six months ended June 30, 2019, there were six loans totaling $297,000 modified as TDRs for which there was a payment default within the first 12 months of modification.

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act and related bank regulatory guidance provides that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a TDR. As of June 30, 2020, the Company had approved 122 loan modifications related to the COVID-19 pandemic with an outstanding loan balance totaling $51.3 million in accordance with the CARES Act. Accordingly, the Company does not account for such loan modifications as TDRs. Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired. See “Note 2 – Accounting Pronouncements Recently Issued or Adopted”.