Note

. Loans and Allowance for

Loan Losses

Loans

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

	December 31,			December 31,
	2019			2018
Mortgage loans:
One-to-four family	$	155,143,081		$	141,779,340
Multi-family		5,861,428			6,776,424
Total mortgage loans		161,004,509			148,555,764

Other loans:
Non-residential		30,679,614			35,286,236
Commercial loans		23,915,335			17,241,698
Consumer direct		20,562,789			15,390,263
Purchased auto		14,551,199			22,080,196
Total other loans		89,708,937			89,998,393
Gross loans		250,713,446			238,554,157
Less: Allowance for loan losses		(2,937,632	)		(2,627,738	)
Loans, net	$	247,775,814		$	235,926,419

Loans acquired in the merger with deteriorated credit quality and accounted for under FASB ASC Topic

310

as of the acquisition date, which was

December 31, 2014,

had a contractual balance due of approximately

$3,194,000

and an estimated fair value of approximately

$1,324,000.

The estimate of the contractual cash flows

not

expected to be collected due to credit quality was approximately

$1,870,000

which consists of an accretable discount of $(

362,000

) and non-accretable discount of $(

1,508,000

The following table reflects activity for the loans acquired with deteriorated credit quality for the years ended

December 31, 2019

and

2018:

	2019			2018
Balance, beginning of year	$	93,427		$	144,528
Payment activity		(28,389	)		(60,413	)
Advance on lines of credit		100,000			-
Accretion into interest income		280			9,312
	$	164,758		$	93,427

The contractual amount outstanding for the loans acquired with deteriorated credit quality totaled

$448,000

and

$432,000

as of

December 31, 2019,

and

December 31, 2018,

respectively.

The following table reflects activity in the accretable yield for the loans acquired with deteriorated credit quality for the years ended

December 31, 2019

and

2018:

	2019			2018
Balance, beginning of year	$	280		$	9,592
Accretion into interest income		(280	)		(9,312	)
	$	-		$	280

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

	Years Ended December 31,
	2019		2018
Purchased auto loans	$	-	$	10,012,800

The following table presents the activity in the allowance for loan losses by portfolio segment as of or for the years ended

December 31, 2019

and

2018:

December 31, 201 9	One-to-Four Family			Multi-family			Non-residential			Commercial		Consumer Direct			Purchased 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		505,357			(34,149	)		(136,253	)		63,400		152,566			44,079			595,000
Loans charged off		(284,980	)		-			-			-		(47,898	)		(161,332	)		(494,210	)
Recoveries of loans previously charged off		138,969			31,920			-			-		4,206			34,009			209,104
Balance at end of period	$	2,121,082		$	24,333		$	207,410		$	198,565	$	191,821		$	194,421		$	2,937,632

Period-end amount allocated to:
Loans individually evaluated for impairment	$	90,359		$	-		$	-		$	-	$	-		$	9,595		$	99,954
Loans acquired with deteriorated credit quality		100,172			-			-			-		-			-			100,172
Loans collectively evaluated for impairment		1,930,551			24,333			207,410			198,565		191,821			184,826			2,737,506
Balance at end of period	$	2,121,082		$	24,333		$	207,410		$	198,565	$	191,821		$	194,421		$	2,937,632

December 31, 201 8	One-to-Four Family			Multi-family			Non-residential			Commercial			Consumer Direct			Purchased 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		546,217			(11,295	)		(27,430	)		(18,431	)		(72,930	)		111,369			527,500
Loans charged off		(312,175	)		-			-			-			-			(166,021	)		(478,196	)
Recoveries of loans previously charged off		50,275			15,887			-			-			15,608			24,218			105,988
Balance at end of period	$	1,761,736		$	26,562		$	343,663		$	135,165		$	82,947		$	277,665		$	2,627,738

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

December 31, 2019

and

2018:

December 31, 201 9	One-to-four Family		Multi-family		Non-residential		Commercial		Consumer Direct		Purchased Auto		Total
Loans individually evaluated for impairment	$	1,724,694	$	-	$	343,720	$	-	$	-	$	19,190	$	2,087,604
Loans acquired with deteriorated credit quality		164,758		-		-		-		-		-		164,758
Loans collectively evaluated for impairment		153,253,629		5,861,428		30,335,894		23,915,335		20,562,789		14,532,009		248,461,084
Ending Balance	$	155,143,081	$	5,861,428	$	30,679,614	$	23,915,335	$	20,562,789	$	14,551,199	$	250,713,446

December 31, 201 8	One-to-four Family		Multi-family		Non-residential		Commercial		Consumer Direct		Purchased 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
Ending Balance	$	141,779,340	$	6,776,424	$	35,286,236	$	17,241,698	$	15,390,263	$	22,080,196	$	238,554,157

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, including loans acquired with deteriorated credit quality, by class of loans, at

December 31, 2019

and

2018:

December 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	$	1,889,452	$	1,357,280	$	532,172	$	1,889,452	$	190,531	$	1,298,425
Multi-family		-		-		-		-		-		-
Non-residential		343,720		343,720		-		343,720		-		377,632
Commercial		-		-		-		-		-		-
Consumer direct		-		-		-		-		-		-
Purchased auto		19,190		-		19,190		19,190		9,595		5,736
	$	2,252,362	$	1,701,000	$	551,362	$	2,252,362	$	200,126	$	1,681,793

December 31, 201 8	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			$	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

The Company recognized

cash basis interest income on impaired loans for the years ended

December 31, 2019

and

2018.

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. Certain TDRs are classified as nonperforming 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 and deferred loan fees or costs), 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

December 31, 2019

included

one

loan of approximately

$60,000

whose term had been modified in a troubled debt restructuring, compared to

one

loan of

$70,000

December 31, 2018.

The amount of TDR loans included in impaired loans decreased approximately

$10,000

as a result of payments. 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

loan modifications during the year ended

December 31, 2019

and

2018

that were classified as troubled debt restructurings.

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

December 31, 2019

and

2018:

December 31, 201 9	Nonaccrual		Loans Past Due Over 90 Days Still Accruing
One-to-four family	$	1,889,452	$	-
Multi-family		-		-
Non-residential		343,720		-
Commercial		-		-
Consumer direct		-		-
Purchased auto		19,190		-
	$	2,252,362	$	-

December 31, 201 8	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

December 31, 2019

and

2018:

December 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	$	2,635,464	$	607,023	$	986,029	$	4,228,516	$	150,914,565	$	155,143,081
Multi-family		104,716		-		-		104,716		5,756,712		5,861,428
Non-residential		272,138		64,116		-		336,254		30,343,360		30,679,614
Commercial		368,448		52,629		-		421,077		23,494,258		23,915,335
Consumer direct		29,243		-		-		29,243		20,533,546		20,562,789
Purchased auto		64,489		21,673		19,190		105,352		14,445,847		14,551,199
	$	3,474,498	$	745,441	$	1,005,219	$	5,225,158	$	245,488,288	$	250,713,446

December 31, 201 8	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, multi-family real estate, 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 residential real estate, multi-family real estate and consumer direct loans. The Company receives monthly reports on the delinquency status of the purchased auto loan portfolio from the servicing company.

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 category are not evaluated on an individual basis.

As of

December 31, 2019

and

2018,

the risk category of loans by class is as follows:

Decemb e r 31, 201 9	Pass		Special Mention		Substandard		Doubtful		Not rated		Total Loans
One-to-four family	$	29,089,454	$	40,429	$	1,889,452	$	-	$	124,123,746	$	155,143,081
Multi-family		-		-		-		-		5,861,428		5,861,428
Non-residential		30,335,894		-		343,720		-		-		30,679,614
Commercial		23,915,335		-		-		-		-		23,915,335
Consumer direct		-		-		-		-		20,562,789		20,562,789
Purchased auto		-		-		19,190		-		14,532,009		14,551,199
Total	$	83,340,683	$	40,429	$	2,252,362	$	-	$	165,079,972	$	250,713,446

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

The Bank has had, and

may

be expected to have in the future, banking transactions in the ordinary course of business with directors, principal officers, their immediate families and companies in which these parties have a

10%

or more beneficial ownership. In the opinion of management, these loans are made with substantially the same terms, including interest rate and collateral, as those prevailing for comparable transactions with other customers and do

not

involve more than the normal risk of collectability. Loans to directors, principal officers, and their immediate families at

December 31, 2019

and

2018

were

$33,292

and

$22,000

respectively.