NOTE

– LOANS HELD FOR INVESTMENT, NET

The components of loans held for investment, net in the consolidated balance sheets were as follows:

	March 31, 2018					December 31, 2017
	Amount			Percent		Amount			Percent

Loans held for investment, net:
Commercial real estate	$	212,600,568			81.0%	$	214,871,788			82.0%
One- to four-family residential real estate		29,940,894			11.4		29,114,060			11.1
Commercial and industrial		13,543,545			5.2		12,296,308			4.7
Consumer and other		6,416,918			2.4		5,740,352			2.2
Total gross loans		262,501,925			100.0%		262,022,508			100.0%
Unamortized loan fees		(1,023,195	)				(1,009,722	)
Loans held for investment		261,478,730					261,012,786
Allowance for loan losses		(3,122,170	)				(3,117,190	)
Loans held for investment, net	$	258,356,560				$	257,895,596

March 31, 2018

and

December 31, 2017 loans held for investment

includes construction loans of

$13.7

million and

$14.7

million, respectively. Commercial real estate construction loans were

$12.3

million and

$13.4

million at March

31,

2018

and December

31,

2017,

respectively. One- to

four

-family residential real estate construction loans were

$1.4

million and

$1.3

million as of March

31,

2018

and December

31,

2017,

respectively.

Allowance

for Loan Losses and Recorded Investment in Loans –

The following is a summary of the allowance for loan losses and recorded investment in loans as of

March 31, 2018

and

December 31, 2017:

	As of March 31, 2018
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total

Allowance for loan losses
Ending balance: individually evaluated for impairment	$	215,000	$	-	$	-	$	-	$	215,000
Ending balance: collectively evaluated for impairment		1,851,285		503,295		514,307		38,283		2,907,170

Total	$	2,066,285	$	503,295	$	514,307	$	38,283	$	3,122,170

Gross loans
Ending balance: individually evaluated for impairment	$	3,709,122	$	710,795	$	1,274,710	$	-	$	5,694,627
Ending balance: collectively evaluated for impairment		208,891,446		29,230,099		12,268,835		6,416,918		256,807,298
Total	$	212,600,568	$	29,940,894	$	13,543,545	$	6,416,918	$	262,501,925

	As of December 31, 2017
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total

Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		2,055,911		567,290		462,406		31,583		3,117,190

Total	$	2,055,911	$	567,290	$	462,406	$	31,583	$	3,117,190

Gross loans
Ending balance: individually evaluated for impairment	$	3,483,078	$	679,184	$	1,274,710	$	-	$	5,436,972
Ending balance: collectively evaluated for impairment		211,388,710		28,434,876		11,021,598		5,740,352		256,585,536
Total	$	214,871,788	$	29,114,060	$	12,296,308	$	5,740,352	$	262,022,508

The following is a summary of activities for the allowance for loan losses for the

three

months ended

March 31, 2018

and

2017:

	Commercial Real Estate		One- to Four- Family Residential Real Estate			Commercial and Industrial		Consumer and Other			Total

Balance December 31, 2017	$	2,055,911	$	567,290		$	462,406	$	31,583		$	3,117,190

Provision for loan losses		10,374		(46,975	)		51,901		6,700			22,000

Charge-offs		-		(23,269	)		-		-			(23,269	)
Recoveries				6,249					-			6,249
Net recoveries		-		(17,020	)		-		-			(17,020	)

Balance March 31, 2018	$	2,066,285	$	503,295		$	514,307	$	38,283		$	3,122,170


Balance December 31, 2016	$	1,688,448	$	617,912		$	147,371	$	52,302		$	2,506,033

Provision for loan losses		120,158		3,488			152,397		(26,043	)		250,000

Charge-offs		-		-			-		-			-
Recoveries		1,200		6,250			-		-			7,450
Net recoveries (charge-offs)		1,200		6,250			-		-			7,450

Balance March 31, 2017	$	1,809,806	$	627,650		$	299,768	$	26,259		$	2,763,483

Nonperforming Assets –

The following tables present an aging analysis of the recorded investment of past due loans as of

March 31, 2018

and

December 31, 2017.

Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. Per Company policy, loans past due

days or more

longer accrue interest.

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables

March 31, 2018
Commercial real estate	$	2,893,412	$	265,711	$	550,000	$	3,709,123	$	208,891,445	$	212,600,568
One- to four-family residential real estate		818,516		60,330		181,101		1,059,947		28,880,947		29,940,894
Commercial and industrial		-		-		1,274,710		1,274,710		12,268,835		13,543,545
Consumer and other		-		-		-		-		6,416,918		6,416,918

Totals	$	3,711,928	$	326,041	$	2,005,811	$	6,043,780	$	256,458,145	$	262,501,925

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables

December 31, 2017
Commercial real estate	$	246,154	$	-	$	550,000	$	796,154	$	214,075,634	$	214,871,788
One- to four-family residential real estate		235,561		116,977		525,532		878,070		28,235,990		29,114,060
Commercial and industrial		-		-		1,274,710		1,274,710		11,021,598		12,296,308
Consumer and other		-		-		-		-		5,740,352		5,740,352

Totals	$	481,715	$	116,977	$	2,350,242	$	2,948,934	$	259,073,574	$	262,022,508

The following table sets forth nonaccrual loans and other real estate at

March 31, 2018

and

December 31, 2017:

	March 31,			December 31,
	2018			2017

Nonaccrual loans
Commercial real estate	$	3,709,122		$	3,483,078
One- to four-family residential real estate		710,795			679,184
Commercial and industrial		1,274,710			1,274,710
Consumer and other		-			-
Total nonaccrual loans		5,694,627			5,436,972
Other real estate (ORE)		-			-

Total nonperforming assets	$	5,694,627		$	5,436,972

Nonperforming assets to gross loans held for investment and ORE		2.17	%		2.08	%
Nonperforming assets to total assets		1.67	%		1.62	%

Two large loan relationships partially secured by real estate comprise

$4.6

million, or

80.7%,

of the

$5.7

million in nonaccrual loans at

March 31, 2018.

$3.6

million, or

63.2%,

of the total

March 31, 2018

nonaccrual loan balance is guaranteed by the Small Business Administration ("SBA").

Credit Quality Indicators –

The following table represents the credit exposure by internally assigned grades at

March 31, 2018

and

December 31, 2017.

This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which

may

affect the risk characteristics of the respective loan.

	As of March 31, 2018
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total

Grade
Pass	$	204,977,160	$	28,255,185	$	11,953,340	$	6,251,066	$	251,436,751
Special mention		1,877,899		-		-		-		1,877,899
Substandard		5,195,509		1,685,709		1,590,205		165,852		8,637,275
Doubtful		550,000		-		-		-		550,000
Loss		-		-		-		-		-

Totals	$	212,600,568	$	29,940,894	$	13,543,545	$	6,416,918	$	262,501,925

	As of December 31, 2017
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total

Grade
Pass	$	208,395,458	$	27,400,698	$	10,624,210	$	5,568,633	$	251,988,999
Special mention		911,571		43,382		-		-		954,953
Substandard		5,014,759		1,669,980		1,672,098		171,719		8,528,556
Doubtful		550,000		-		-		-		550,000
Loss		-		-		-		-		-

Totals	$	214,871,788	$	29,114,060	$	12,296,308	$	5,740,352	$	262,022,508

The Bank’s internally assigned grades are as follows:

Pass

– Strong credit with

existing or known potential weaknesses deserving of management’s close attention.

Special Mention

– Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard

– Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful

– All the weakness inherent in

one

classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss

– Considered uncollectible or

longer a bankable asset. This classification does

not

mean that the asset has absolutely

recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is

not

practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery

may

be collected in the future.

Impaired Loans –

The following tables include the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

	As of, and for the Three Months Ended, March 31, 2018
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	3,159,122	$	3,159,122	$	-	$	3,196,492
One- to four-family residential real estate		710,795		710,795		-		746,539
Commercial and industrial		1,274,710		1,274,710		-		1,297,740
Consumer and other		-		-		-		-
		5,144,627		5,144,627		-		5,240,771

With an allowance recorded:		550,000		550,000		215,000		550,000
	$	5,694,627	$	5,694,627	$	215,000	$	5,790,771

Total:
Commercial real estate	$	3,709,122	$	3,709,122	$	215,000	$	3,746,492
One- to four-family residential real estate		710,795		710,795		-		746,539
Commercial and industrial		1,274,710		1,274,710		-		1,297,740
Consumer and other		-		-		-		-
	$	5,694,627	$	5,694,627	$	215,000	$	5,790,771

	As of, and for the Year Ended, December 31, 2017
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	3,483,078	$	3,483,078	$	-	$	3,521,421
One- to four-family residential real estate		679,184		679,184		-		684,632
Commercial and industrial		1,274,710		1,274,710		-		1,297,740
Consumer and other		-		-		-		-
		5,436,972		5,436,972				5,503,793

With an allowance recorded:		-		-		-		-

Total:
Commercial real estate	$	3,483,078	$	3,483,078	$	-	$	3,521,421
One- to four-family residential real estate		679,184		679,184		-		684,632
Commercial and industrial		1,274,710		1,274,710		-		1,297,740
Consumer and other		-		-		-		-
	$	5,436,972	$	5,436,972			$	5,503,793

During the

three

months ended

March 31, 2018

and

2017,

interest income was recognized on nonaccrual loans as interest collected was credited to loan principal.

Certain loans within the Company’s loan and ORE portfolios are guaranteed by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were

commitments from the VA to take title to foreclosed VA properties at

March 31, 2018

and

December 31, 2017.

Troubled Debt Restructurings

– Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that they would

not

otherwise consider. This

may

include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show

less than

six

consecutive months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.

There were

troubled debt restructurings as of

March 31, 2018

December 31, 2017.

In the normal course of business, the Company

may

modify a loan for a credit-worthy borrower where the modified loan is

not

considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit-worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower’s decline in performance, and projections intended to assess repayment ability going forward.