NOTE

– L

OANS AND ALLOWANCE FOR CREDIT LOSSES

The components of loans, net of deferred loan costs (fees), are as follows:

	March 31,			December 31,
	2019			2018
Mortgage loans:
One-to-four family residential loans	$	145,180,143		$	141,779,340
Multi-family residential loans		6,675,726			6,776,424
Total mortgage loans		151,855,869			148,555,764

Other loans:
Non-residential real estate loans		31,440,008			35,286,236
Commercial loans		18,210,794			17,241,698
Consumer direct		16,708,018			15,390,263
Purchased auto		20,206,933			22,080,196
Total other loans		86,565,753			89,998,393
Gross loans		238,421,622			238,554,157
Less: Allowance for loan losses		(2,628,365	)		(2,627,738	)
Loans, net	$	235,793,257		$	235,926,419

Purchases of loans receivable, segregated by class of loans, for the periods indicated were as follows:

	Three Months Ended March 31,
	2019		2018
Purchased auto loans	$	-	$	4,034,864

Net (charge-offs) / recoveries, segregated by class of loans, for the periods indicated were as follows:

	Three Months Ended March 31,
	2019			2018
One-to-four family	$	(109,876	)	$	(2,283	)
Multi-family		3,971			3,972
Non-residential		-			-
Consumer direct		353			1,727
Purchased auto		(23,821	)		(30,829	)
Net (charge-offs)/recoveries	$	(129,373	)	$	(27,413	)

The following table presents the activity in the allowance for loan losses by portfolio segment for the

three

months ended

March 31, 2019

and

2018:

	One-to-
	four			Multi-			Non-					Consumer		Purchased
March 31, 201 9	family			family			residential			Commercial		direct		auto			Total
Balance at beginning of period	$	1,761,736		$	26,562		$	343,663		$	135,165	$	82,947	$	277,665		$	2,627,738
Provision charged to income		71,605			(3,835	)		(25,809	)		10,492		41,985		35,562			130,000
Loans charged off		(236,220	)		-			-			-		-		(34,520	)		(270,740	)
Recoveries of loans previously charged off		126,344			3,971			-			-		353		10,699			141,367
Balance at end of period	$	1,723,465		$	26,698		$	317,854		$	145,657	$	125,285	$	289,406		$	2,628,365

	One-to-
	four			Multi-			Non-					Consumer			Purchased
March 31, 2018	family			family			residential		Commercial			direct			auto			Total
Balance at beginning of period	$	1,477,419		$	21,970		$	371,093	$	153,596		$	140,269		$	308,099		$	2,472,446
Provision charged to income		114,187			(816	)		1,187		(521	)		(44,411	)		55,874			125,500
Loans charged off		(6,724	)		-			-		-			-			(36,194	)		(42,918	)
Recoveries of loans previously charged off		4,441			3,972			-		-			1,727			5,365			15,505
Balance at end of period	$	1,589,323		$	25,126		$	372,280	$	153,075		$	97,585		$	333,144		$	2,570,533

The following table presents the recorded investment in loans and the related allowances allocated by portfolio segment and based on impairment method as of

March 31, 2019

and

December 31, 2018:

	One-to-
	four		Multi-		Non-				Consumer		Purchased
March 31, 201 9	family		family		residential		Commercial		direct		auto		Total
Loans individually evaluated for Impairment	$	574,262	$	-	$	444,322	$	-	$	-	$	-	$	1,018,584
Loans acquired with deteriorated credit quality		87,860		-		-		-		-		-		87,860
Loans collectively evaluated for Impairment		144,518,021		6,675,726		30,995,686		18,210,794		16,708,018		20,206,933		237,315,178
Balance at end of period	$	145,180,143	$	6,675,726	$	31,440,008	$	18,210,794	$	16,708,018	$	20,206,933	$	238,421,622

Period-end amount allocated to:
Loans individually evaluated for Impairment	$	86,591	$	-	$	38,921	$	-	$	-	$	-	$	125,512
Loans acquired with deteriorated credit quality		3,598		-		-		-		-		-		3,598
Loans collectively evaluated for Impairment		1,633,276		26,698		278,933		145,657		125,285		289,406		2,499,255
Balance at end of period	$	1,723,465	$	26,698	$	317,854	$	145,657	$	125,285	$	289,406	$	2,628,365

	One-to-
	four		Multi-		Non-				Consumer		Purchased
December 31, 2018	family		family		residential		Commercial		direct		auto		Total
Loans individually evaluated for Impairment	$	955,317	$	-	$	455,196	$	-	$	-	$	-	$	1,410,513
Loans acquired with deteriorated credit quality		93,427		-		-		-		-		-		93,427
Loans collectively evaluated for Impairment		140,730,596		6,776,424		34,831,040		17,241,698		15,390,263		22,080,196		237,050,217
Balance at end of period	$	141,779,340	$	6,776,424	$	35,286,236	$	17,241,698	$	15,390,263	$	22,080,196	$	238,554,157

Period-end amount allocated to:
Loans individually evaluated for Impairment	$	160,822	$	-	$	38,674	$	-	$	-	$	-	$	199,496
Loans acquired with deteriorated credit quality		17,817		-		-		-		-		-		17,817
Loans collectively evaluated for impairment		1,583,097		26,562		304,989		135,165		82,947		277,665		2,410,425
Balance at end of period	$	1,761,736	$	26,562	$	343,663	$	135,165	$	82,947	$	277,665	$	2,627,738

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

The following table presents loans individually evaluated for impairment, by class of loans, as of

March 31, 2019

and

December 31, 2018:

March 31, 201 9	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
One-to-four family	$	662,122	$	414,670	$	247,452	$	662,122	$	90,189	$	875,235
Multi-family		-		-		-		-		-		-
Non-residential		444,322		12,133		432,189		444,322		38,921		447,893
Commercial		-		-		-		-		-		-
Consumer direct		-		-		-		-		-		-
Purchased auto		-		-		-		-		-		-
	$	1,106,444	$	426,803	$	679,641	$	1,106,444	$	129,110	$	1,323,128

December 31, 2018	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
One-to-four family	$	1,048,744	$	427,825	$	620,919	$	1,048,744	$	178,639	$	1,074,284
Multi-family		-		-		-		-		-		-
Non-residential		455,196		141,804		313,392		455,196		38,674		366,226
Commercial		-		-		-		-		-		1,282
Consumer direct		-		-		-		-		-		-
Purchased auto		-		-		-		-		-		5,708
	$	1,503,940	$	569,629	$	934,311	$	1,503,940	$	217,313	$	1,447,500

For the

three

months ended

March 31, 2019,

the Company recognized

cash basis interest income on impaired loans. For the

three

months ended

March 31, 2018,

the Company recognized

cash basis interest income on impaired loans.

March 31, 2019

there were

impaired loans totaling approximately

$1.1

million, compared to

impaired loans totaling approximately

$1.5

million at

December 31, 2018.

The change in impaired loans was a result of writing down and moving

one

impaired loan totaling approximately

$277,000

to foreclosed real estate/repossessed assets, payoffs on

two

loans of approximately

$109,000

and payments of approximately

$22,000,

offset by the addition of

one

loan totaling approximately

$18,500

to the impaired loan list.

Our loan portfolio also includes certain loans that have been modified in a troubled debt restructuring (“TDR”), where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance or other actions. TDRs are classified as non-performing at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least

six

months.

When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or use the current fair value of the collateral, less estimated selling costs, for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, we evaluate all TDRs, including those that have payment defaults, for possible impairment and recognize impairment through the allowance.

Impaired loans at

March 31, 2019

included approximately

$68,000

of loans whose terms have been modified in troubled debt restructurings, compared to approximately

$70,000

December 31, 2018.

The amount of TDR loans included in impaired loans decreased as a result of payments of approximately

$2,000.

The remaining restructured loans are being monitored by management and remain on nonaccrual status as they have

not,

per accounting guidelines, performed in accordance with their restructured terms for the requisite period of time (generally at least

six

consecutive months) to be returned to accrual status.

There were

new loans classified as TDRs during the

three

months ended

March 31, 2019

and

2018.

There were

TDR loans that were restructured during the

twelve

months prior to

March 31, 2019

and

2018

that had payment defaults (i.e.,

days or more past due following a modification) during the

three

months ended

March 31, 2019

and

2018.

All TDRs are evaluated for possible impairment and any impairment identified is recognized through the allowance. Additionally, the qualitative factors are updated quarterly for trends in economic and non-performing factors, including collateral securing TDRs.

The following table presents the recorded investment in nonaccrual loans and loans past due over

days still on accrual status, by class of loans, as of

March 31, 2019

and

December 31, 2018:

March 31, 201 9	Nonaccrual		Loans Past Due Over 90 Days Still Accruing
One-to-four family	$	662,122	$	-
Multi-family		-		-
Non-residential		444,322		-
Commercial		-		-
Consumer direct		-		-
Purchased auto		-		-
	$	1,106,444	$	-

December 31, 2018	Nonaccrual		Loans Past Due Over 90 Days Still Accruing
One-to-four family	$	1,048,744	$	-
Multi-family		-		-
Non-residential		455,196		-
Commercial		-		-
Consumer direct		-		-
Purchased auto		-		-
	$	1,503,940	$	-

The following table presents the aging of the recorded investment in loans, by class of loans, as of

March 31, 2019

and

December 31, 2018:

March 31, 201 9	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
One-to-four family	$	2,290,101	$	107,858	$	240,756	$	2,638,715	$	142,541,428	$	145,180,143
Multi-family		-		-		-		-		6,675,726		6,675,726
Non-residential		302,853		-		129,336		432,189		31,007,819		31,440,008
Commercial		10,504		178,634		-		189,138		18,021,656		18,210,794
Consumer direct		-		-		-		-		16,708,018		16,708,018
Purchased auto		2,085		-		-		2,085		20,204,848		20,206,933
	$	2,605,543	$	286,492	$	370,092	$	3,262,127	$	235,159,495	$	238,421,622

December 31, 2018	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
One-to-four family	$	1,293,142	$	549,331	$	788,127	$	2,630,600	$	139,148,740	$	141,779,340
Multi-family		-		-		-		-		6,776,424		6,776,424
Non-residential		1,413,392		129,464		127,464		1,670,320		33,615,916		35,286,236
Commercial		3,989		-		-		3,989		17,237,709		17,241,698
Consumer direct		9,044		-		-		9,044		15,381,219		15,390,263
Purchased auto		31,671		16,069		-		47,740		22,032,456		22,080,196
	$	2,751,238	$	694,864	$	915,591	$	4,361,693	$	234,192,464	$	238,554,157

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. For commercial and non-residential real estate loans, the Company’s credit quality indicator is internally assigned risk ratings. Each commercial and non-residential real estate loan is assigned a risk rating upon origination. The risk rating is reviewed annually, at a minimum, and on an as needed basis depending on the specific circumstances of the loan.

For residential real estate loans, multi-family, consumer direct and purchased auto loans, the Company’s credit quality indicator is performance determined by delinquency status. Delinquency status is updated regularly by the Company’s loan system for real estate loans, multi-family and consumer direct loans. The Company receives monthly reports on the delinquency status of the purchased auto loan portfolio from the servicing company. Generally, when residential real estate loans, multi-family and consumer direct loans become over

days past due, they are classified as substandard. Periodically, based on subsequent performance over

months, these loans could be upgraded to special mention.

The Company uses the following definitions for risk ratings:

●

Pass – loans classified as pass are of a higher quality and do

not

fit any of the other “rated” categories below (e.g., special mention, substandard or doubtful). The likelihood of loss is considered remote.

●

Special Mention – loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

●

Substandard – loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are

not

corrected.

●

Doubtful – loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

●

Not

Rated – loans in this bucket are

not

evaluated on an individual basis.

March 31, 2019

and

December 31, 2018,

the risk category of loans by class is as follows:

March 31, 2019	Pass		Special Mention		Substandard		Doubtful		Not rated		Total Loans
One-to-four family	$	31,287,749	$	332,047	$	662,122	$	-	$	112,898,225	$	145,180,143
Multi-family		-		-		-		-		6,675,726		6,675,726
Non-residential		30,995,686		-		444,322		-		-		31,440,008
Commercial		18,210,794		-		-		-		-		18,210,794
Consumer direct		-		37,570		-		-		16,670,448		16,708,018
Purchased auto		-		-		-		-		20,206,933		20,206,933
Total	$	80,494,229	$	369,617	$	1,106,444	$	-	$	156,451,332	$	238,421,622

December 31, 2018	Pass		Special Mention		Substandard		Doubtful		Not rated		Total Loans
One-to-four family	$	29,653,633	$	335,758	$	1,048,744	$	-	$	110,741,205	$	141,779,340
Multi-family		-		-		-		-		6,776,424		6,776,424
Non-residential		34,831,040		-		455,196		-		-		35,286,236
Commercial		17,241,698		-		-		-		-		17,241,698
Consumer direct		-		-		-		-		15,390,263		15,390,263
Purchased auto		-		-		-		-		22,080,196		22,080,196
Total	$	81,726,371	$	335,758	$	1,503,940	$	-	$	154,988,088	$	238,554,157

March 31, 2019,

the Company held

$196,000

in foreclosed residential real estate property, compared to

December 31, 2018.

In addition, the Company also held

$92,925

and

$276,815

in consumer mortgage loans that are collateralized by residential real estate properties that were in the process of foreclosure at

March 31, 2019

and

December 31, 2018,

respectively.