NOTE

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, 2017	$	900			5,073			1,630			1,708			9,311

Provision for losses	$	(44	)		(421	)		202			(386	)		(649	)
Charge-offs		(24	)		0			(226	)		(270	)		(520	)
Recoveries		1			217			16			310			544
Balance, December 31, 2018	$	833			4,869			1,622			1,362			8,686

Provision for losses	$	25			(1,509	)		(29	)		297			(1,216	)
Charge-offs		(1	)		0			(107	)		(880	)		(988	)
Recoveries		0			1,700			21			361			2,082
Balance, December 31, 2019	$	857			5,060			1,507			1,140			8,564

Provision for losses	$	173			2,938			(63	)		(349	)		2,699
Charge-offs		0			(730	)		(84	)		(8	)		(822	)
Recoveries		0			27			29			202			258
Balance, December 31, 2020	$	1,030			7,295			1,389			985			10,699

Allocated to:
Specific reserves	$	62			451			119			93			725
General reserves		795			4,609			1,388			1,047			7,839
Balance, December 31, 2019	$	857			5,060			1,507			1,140			8,564

Allocated to:
Specific reserves	$	29			95			100			14			238
General reserves		1,001			7,200			1,289			971			10,461
Balance, December 31, 2020	$	1,030			7,295			1,389			985			10,699

Loans receivable at December 31, 2019:
Individually reviewed for impairment	$	974			1,166			976			735			3,851
Collectively reviewed for impairment		119,090			349,029			68,973			63,492			600,584
Ending balance	$	120,064			350,195			69,949			64,227			604,435

Loans receivable at December 31, 2020:
Individually reviewed for impairment	$	857			1,484			750			35			3,126
Collectively reviewed for impairment		134,166			379,220			54,641			82,638			650,665
Ending balance	$	135,023			380,704			55,391			82,673			653,791

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

December 31, 2020

and

2019:

	December 31, 2020
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	1,219		2,845		29		0		4,093		130,930		135,023
Commercial real estate:
Real estate rental and leasing		8,065		3,483		0		0		11,548		190,852		202,400
Other		8,774		9,750		0		0		18,524		159,780		178,304
Consumer		0		600		132		18		750		54,641		55,391
Commercial business		1,968		2,482		0		0		4,450		78,223		82,673
	$	20,026		19,160		161		18		39,365		614,426		653,791

	December 31, 2019
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	1,118		1,765		35		0		2,918		117,146		120,064
Commercial real estate:
Real estate rental and leasing		3,489		9,114		0		0		12,603		179,899		192,502
Other		4,451		5,253		0		0		9,704		147,989		157,693
Consumer		0		842		69		65		976		68,973		69,949
Commercial business		5,710		2,516		0		0		8,226		56,001		64,227
	$	14,768		19,490		104		65		34,427		570,008		604,435

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

December 31, 2020

and

2019

is 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
2020
Single family	$	626		38		298		962		134,061		135,023		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		202,400		202,400		0
Other		0		0		0		0		178,304		178,304		0
Consumer		458		66		279		803		54,588		55,391		0
Commercial business		0		0		0		0		82,673		82,673		0
	$	1,084		104		577		1,765		652,026		653,791		0
2019
Single family	$	786		77		59		922		119,142		120,064		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		192,502		192,502		0
Other		0		0		0		0		157,693		157,693		0
Consumer		527		31		206		764		69,185		69,949		0
Commercial business		147		13		550		710		63,517		64,227
	$	1,460		121		815		2,396		602,039		604,435		0

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a TDR.

The following table summarizes impaired loans and related allowances for the years ended

December 31, 2020

and

2019:

	December 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interes t Income Recognized
Loans with no related allowance recorded:
Single family	$	740		759		0		616		34
Commercial real estate:
Real estate rental and leasing		932		1,582		0		580		33
Other		211		211		0		314		2
Consumer		574		574		0		626		10
Commercial business		0		0		0		2		0

Loans with an allowance recorded:
Single family		117		117		29		242		0
Commercial real estate:
Real estate rental and leasing		166		166		5		175		0
Other		175		175		90		425		10
Consumer		176		176		100		170		6
Commercial business		35		586		14		200		2

Total:
Single family		857		876		29		858		34
Commercial real estate:
Real estate rental and leasing		1,098		1,748		5		755		33
Other		386		386		90		739		12
Consumer		750		750		100		796		16
Commercial business		35		586		14		202		2
	$	3,126		4,346		238		3,350		97

	December 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	544		563		0		508		33
Commercial real estate:
Other		0		0		0		10		0
Consumer		781		781		0		580		26

Loans with an allowance recorded:
Single family		430		430		62		633		3
Commercial real estate:
Real estate rental and leasing		184		184		16		193		0
Other		982		982		435		1,048		71
Consumer		195		195		119		231		14
Commercial business		735		1,287		93		476		24

Total:
Single family		974		993		62		1,141		36
Commercial real estate:
Real estate rental and leasing		184		184		16		193		0
Other		982		982		435		1,058		71
Consumer		976		976		119		811		40
Commercial business		735		1,287		93		476		24
	$	3,851		4,422		725		3,679		171

December 31, 2020,

2019

and

2018,

non-accruing loans totaled

$2.7

million,

$2.1

million and

$2.7

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

$0.2

million,

$0.2

million and

$0.7

million, respectively. 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

$2.1

million,

$0.8

million and

$0.4

million at

December 31, 2020,

2019

and

2018,

respectively. Had the non-accruing loans performed in accordance with their original terms, the Company would have recorded gross interest income on the loans of

$0.2

million,

$0.2

million and

$0.3

million in

2020,

2019

and

2018,

respectively. For each of the years ended

December 31, 2020,

2019

and

2018,

the Company recognized interest income on these loans of

$0.1

million. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accrual loans also include some of the loans that have had terms modified in a TDR.

The following table summarizes non-accrual loans at

December 31, 2020

and

2019:

(Dollars in thousands)	2020		2019
Single family	$	502		617
Commercial real estate:
Real estate rental and leasing		1,098		184
Other		386		0
Consumer		689		659
Commercial business		9		621
	$	2,684		2,081

Included in loans receivable, net, are certain loans that have been modified in order to maximize collection of loan balances. If the Company, for legal or economic reasons related to the borrower's financial difficulties, grants a concession compared to the original terms and conditions of the loan, the modified loan is considered a TDR.

December 31, 2020,

2019

and

2018,

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

$1.5

million,

$2.5

million and

$2.5

million, respectively. Had these loans been performing in accordance with their original terms throughout

2020,

2019

and

2018,

the Company would have recorded gross interest income of

$0.1

million,

$0.2

million and

$0.3

million, respectively. During

2020

the amount of interest income received on these loans was

not

material. During

2019

and

2018,

the Company recognized interest income of

$0.1

million and

$0.2

million, respectively, on these loans. For the loans that were modified in

2020,

none

were classified and performing and

$0.3

million were non-performing at

December 31, 2020.

The following table summarizes TDRs at

December 31, 2020

and

2019:

(Dollars in thousands)	2020		2019
Single family	$	612		623
Commercial real estate:
Other		211		983
Consumer		630		745
Commercial business		25		114
	$	1,478		2,465

As of

December 31, 2020,

the Bank had commitments to lend an additional

$1.1

million to a borrower who has a 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 homes under construction. There were commitments to lend additional funds of

$0.8

million to this same borrower at

December 31, 2019.

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

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

When a loan is modified as 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 periods ended

December 31, 2020

and

2019:

	Year ended December 31, 2020						Year ended December 31, 2019
(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	$	94		101		4	$	215		220
Commercial real estate:
Other		2		293		293		0		0		0
Consumer		0		0		0		10		371		371
Total		3	$	387		394		14	$	586		591

There were

loans that were restructured during the years ended

December 31, 2020

and

2019

that subsequently defaulted during

2020

and

2019,

respectively.

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 non-accrual 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 accruing status. Loans that were accruing prior to modification

may

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 allocated reserves for TDRs were

$0.1

million, or

0.9%,

of the total

$10.7

million in allowance for loan losses at

December 31, 2020,

and

$0.6

million, or

7.2%,

of the total

$8.6

million in allowance for loan losses at

December 31, 2019.

The CARES Act was signed into law on

March 27, 2020

and the Bank's regulators issued the

Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

April 7, 2020.

In accordance with the regulatory guidance, the Bank offered loan payment accommodations to certain customers who were negatively impacted by the COVID-

pandemic by deferring the loan payments for up to

six

months on their outstanding loans with the Bank. At

June 30, 2020

the Bank had

$119.1

million of loans to borrowers who had their payments deferred. At

December 31, 2020

those deferral periods had expired and the Bank had

loans to borrowers that had their loan payments deferred. Section

4013

of the CARES act temporarily allows the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDR's if the accommodation was granted prior to

December 31, 2020.

All of the borrowers whose loan deferral period ended during

2020

have resumed making their normal payments except for the

$34.6

million of loans that were granted loan accommodations in accordance with Section

4013

of the CARES Act. These accommodations are in addition to the TDR's that are disclosed above. The accommodations granted included

$29.2

million of loans that are required to make interest only payments for periods up to

one

year and

$5.4

million of loans that had their loan amortization period increased. Of the loans removed from the deferred list during the period,

$8.1

million were downgraded, of which

$2.3

million were classified but still accruing at

December 31, 2020.

The commercial credit area continues to communicate regularly with the borrowers that have been granted loan accommodations and monitors their activity closely. This information is used to analyze the performance of these loans and to anticipate potential issues that these loans

may

develop so that risk ratings

may

be appropriately adjusted in a timely manner. It is anticipated that some borrowers that have been granted accommodations will be in a position to resume making their regular loan payments at the end of the current accommodation period. Other borrowers, particularly in the hospitality and restaurant industries,

may

need additional accommodations when the current accommodation period ends as their operations

may

need more time to recover from the impacts of the pandemic.