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)

Allowance for Loan Losses and Credit Quality Information

The allowance for loan losses is summarized as follows:

(Dollars in thousands)	Single Family			Commercial Real Estate		Consumer			Commercial Business			Total
Balance, December 31, 2018	$	833			4,869		1,622			1,362			8,686
Provision for losses		100			13		3			(89	)		27
Charge-offs		0			0		(39	)		(43	)		(82	)
Recoveries		0			10		2			30			42
Balance, March 31, 2019	$	933			4,892		1,588			1,260			8,673

Balance, December 31, 2017	$	900			5,073		1,630			1,708			9,311
Provision for losses		(68	)		118		(145	)		(30	)		(125	)
Charge-offs		(23	)		0		(69	)		0			(92	)
Recoveries		0			7		7			21			35
Balance, March 31, 2018	$	809			5,198		1,423			1,699			9,129

Allocated to:
Specific reserves	$	98			451		172			73			794
General reserves		735			4,418		1,450			1,289			7,892
Balance, December 31, 2018	$	833			4,869		1,622			1,362			8,686

Allocated to:
Specific reserves	$	123			453		153			90			819
General reserves		810			4,439		1,435			1,170			7,854
Balance, March 31, 2019	$	933			4,892		1,588			1,260			8,673

Loans receivable at December 31, 2018:
Individually reviewed for impairment	$	1,226			1,311		856			303			3,696
Collectively reviewed for impairment		109,472			334,819		71,676			75,193			591,160
Ending balance	$	110,698			336,130		72,532			75,496			594,856

Loans receivable at March 31, 2019:
Individually reviewed for impairment	$	1,247			1,276		620			347			3,490
Collectively reviewed for impairment		107,963			348,588		72,465			75,138			604,154
Ending balance	$	109,210			349,864		73,085			75,485			607,644

The following table summarizes the amount of classified and unclassified loans at

March 31, 2019

and

December 31, 2018:

	March 31, 2019
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	571		1,152		95		0		1,818		107,392		109,210
Commercial real estate:
Real estate rental and leasing		8,101		2,730		0		0		10,831		187,548		198,379
Other		5,201		5,039		0		0		10,240		141,245		151,485
Consumer		0		476		36		105		617		72,468		73,085
Commercial business		5,639		2,670		0		0		8,309		67,176		75,485
	$	19,512		12,067		131		105		31,815		575,829		607,644

	December 31, 2018
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	150		1,771		40		0		1,961		108,737		110,698
Commercial real estate:
Real estate rental and leasing		5,564		4,805		0		0		10,369		185,195		195,564
Other		4,879		5,118		0		0		9,997		130,569		140,566
Consumer		0		709		41		106		856		71,676		72,532
Commercial business		6,647		2,761		0		0		9,408		66,088		75,496
	$	17,240		15,164		81		106		32,591		562,265		594,856

Classified loans represent special mention, substandard (performing and non-performing), and non-performing loans categorized as doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected,

may

result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are

not

corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet

may

not

be warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.

The aging of past due loans at

March 31, 2019

and

December 31, 2018

are summarized as follows:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
March 31, 201 9
Single family	$	798		0		91		889		108,321		109,210		0
Commercial real estate:
Real estate rental and leasing		198		0		0		198		198,181		198,379		0
Other		273		0		0		273		151,212		151,485		0
Consumer		301		180		78		559		72,526		73,085		0
Commercial business		55		0		80		135		75,350		75,485		0
	$	1,625		180		249		2,054		605,590		607,644		0

December 31, 201 8
Single family	$	680		325		77		1,082		109,616		110,698		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		195,564		195,564		0
Other		0		0		0		0		140,566		140,566		0
Consumer		391		100		279		770		71,762		72,532		0
Commercial business		21		0		0		21		75,475		75,496		0
	$	1,092		425		356		1,873		592,983		594,856		0

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring (TDR). The following table summarizes impaired loans and related allowances as of

March 31, 2019

and

December 31, 2018:

	March 31, 2019						December 31, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance recorded:
Single family	$	438		457		0		458		477		0
Commercial real estate:
Other		25		1,681		0		25		1,682		0
Consumer		382		382		0		515		515		0

Loans with an allowance recorded:
Single family		809		809		123		768		768		98
Commercial real estate:
Real estate rental and leasing		199		199		21		201		201		21
Other		1,052		1,052		432		1,085		1,085		430
Consumer		238		238		153		341		341		172
Commercial business		347		899		90		303		854		73

Total:
Single family		1,247		1,266		123		1,226		1,245		98
Commercial real estate:
Real estate rental and leasing		199		199		21		201		201		21
Other		1,077		2,733		432		1,110		2,767		430
Consumer		620		620		153		856		856		172
Commercial business		347		899		90		303		854		73
	$	3,490		5,717		819		3,696		5,923		794

The following table summarizes the average recorded investment and interest income recognized on impaired loans during the

three

months ended

March 31, 2019

and

2018:

	March 31, 2019				March 31, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	448		4		424		6
Commercial real estate:
Real estate rental and leasing		0		0		35		0
Other		25		30		95		24
Consumer		449		2		409		2

Loans with an allowance recorded:
Single family		789		3		924		0
Commercial real estate:
Real estate rental and leasing		200		0		0		0
Other		1,069		0		1,314		0
Consumer		290		3		461		3
Commercial business		325		1		494		2

Total:
Single family		1,237		7		1,348		6
Commercial real estate:
Real estate rental and leasing		200		0		35		0
Other		1,094		30		1,409		24
Consumer		739		5		870		5
Commercial business		325		1		494		2
	$	3,595		43		4,156		37

March 31, 2019

and

December 31, 2018,

non-accruing loans totaled

$2.5

million and

$2.7

million, respectively, for which the related allowance for loan losses was

$0.7

million for both quarters. All of the interest income recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which

specific allowance has been recorded, because management determined that the value of the collateral was sufficient to repay the loan, totaled

$0.3

million and

$0.4

million, at

March 31, 2019

and

December 31, 2018,

respectively. Non-accrual loans also include certain loans that have had terms modified in a TDR.

The non-accrual loans at

March 31, 2019

and

December 31, 2018

are summarized as follows:

(Dollars in thousands)	March 31, 2019		December 31, 2018

Single family	$	751	$	730
Commercial real estate:
Real estate rental and leasing		199		201
Other		1,077		1,110
Consumer		283		489
Commercial business		212		148
	$	2,522	$	2,678

March 31, 2019

and

December 31, 2018,

there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling

$2.4

million and

$2.5

million, respectively. Loans that were restructured in the

first

quarter of

2019

were

not

material. Of the loans that were restructured in the

first

quarter of

2018,

$0.1

million were classified but performing, and

$1.3

million were non-performing at

March 31, 2018.

The following table summarizes TDRs at

March 31, 2019

and

December 31, 2018:

	March 31, 2019						December, 31, 2018
(Dollars in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Single family	$	496		158		654		496		140		636
Commercial real estate		0		1,077		1,077		0		1,110		1,110
Consumer		337		171		508		367		155		522
Commercial business		135		49		184		155		53		208
	$	968		1,455		2,423		1,018		1,458		2,476

As of

March 31, 2019,

the Bank had commitments to lend an additional

$0.8

million to a borrower who has TDR and non-accrual loans. These additional funds are for the construction of single family homes with a maximum loan-to-value ratio of

75%.

These loans are secured by the home under construction. At

December 31, 2018,

there were commitments to lend additional funds of

$0.9

million to this same borrower.

TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are

not

reported as TDRs after

twelve

months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for the entire

twelve

month period. All loans classified as TDRs are considered to be impaired.

When a loan is modified in a TDR, there

may

be a direct, material impact on the loans within the consolidated balance sheets, as principal balances

may

be partially forgiven. The financial effects of TDRs are presented in the following table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the

three

months ended

March 31, 2019

and

March 31, 2018.

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		1	$	21		24		1	$	55		58
Commercial real estate:
Real estate rental and leasing		0		0		0		1		54		54
Other		0		0		0		1		1,274		1,274
Consumer		2		26		26		4		117		118
Commercial business		0		0		0		1		70		70
Total		3	$	47		50		8	$	1,570		1,574

There were

loans that were restructured within the

twelve

months preceding

March 31, 2019

and

March 31, 2018

that defaulted during the

three

months ended

March 31, 2019

and

March 31, 2018.

The Company considers a loan to have defaulted when it becomes

or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement. Loans that were non-accrual prior to modification remain on non-accrual status for at least

six

months following modification. Non-accrual TDR loans that have performed according to the modified terms for

six

months

may

be returned to accrual status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.

TDRs are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral-dependent, the value of the collateral is reviewed and additional reserves

may

be added as needed. Loans that are

not

collateral-dependent

may

have additional reserves established if deemed necessary. The reserves for TDRs were

$0.6

million, or

7.0%,

of the total

$8.7

million in loan loss reserves at

March 31, 2019

and

$0.6

million, or

7.2%,

of the total

$8.7

million in loan loss reserves at

December 31, 2018.

The following is additional information with respect to loans acquired through acquisitions:

(Dollars in thousands)	Contractual Principal Receivable			Accretable Difference			Net Carrying Amount
Purchased performing loans:
Balance at December 31, 2018	$	7,313			(182	)		7,131
Change due to payments/refinances		(203	)		9			(194	)
Balance at March 31, 2019	$	7,110			(173	)		6,937

(Dollars in thousands)	Contractual Principal Receivable			Non-Accretable Difference			Net Carrying Amount
Purchased credit impaired loans:
Balance at December 31, 2018	$	188			(6	)		182
Change due to payments/refinances		(2	)		1			(1	)
Balance at March 31, 2019	$	186			(5	)		181

The Company has loans for which there was at acquisition evidence of deterioration of credit quality since origination and for which it was probable at acquisition that all contractually required payments would

not

be collected. The carrying amount of those loans as of

March 31, 2019

was

$0.2

million.

provision for loan losses was recognized during the period ended

March 31, 2019

related to acquired loans as there was

significant change to the credit quality of those loans.