Note 9 - Allowance for Loan Losses and Credit Quality Information

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Allowance For Loan Losses And Credit Quality Information [Text Block]

(9) 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
For the three months ended September 30, 2021:
Balance, June 30, 2021	$	929			7,033			1,039			914			9,915
Provision for losses		13			(713	)		(72	)		(114	)		(886	)
Recoveries		0			0			30			11			41
Balance, September 30, 2021	$	942			6,320			997			811			9,070
For the nine months ended September 30, 2021:
Balance, December 31, 2020	$	1,030			7,295			1,389			985			10,699
Provision for losses		(88	)		(1,625	)		(408	)		(232	)		(2,353	)
Charge-offs		0			0			(42	)		0			(42	)
Recoveries		0			650			58			58			766
Balance, September 30, 2021	$	942			6,320			997			811			9,070
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
Allocated to:
Specific reserves	$	38			152			88			8			286
General reserves		904			6,168			909			803			8,784
Balance, September 30, 2021	$	942			6,320			997			811			9,070
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
Loans receivable at September 30, 2021:
Individually reviewed for impairment	$	445			684			724			18			1,871
Collectively reviewed for impairment		157,057			375,016			42,029			55,725			629,827
Ending balance	$	157,502			375,700			42,753			55,743			631,698

(Dollars in thousands)	Single Family		Commercial Real Estate			Consumer			Commercial Business			Total
For the three months ended September 30, 2020:
Balance, June 30, 2020	$	938		5,382			1,464			865			8,649
Provision for losses		27		878			(64	)		(71	)		770
Charge-offs		0		0			(29	)		(8	)		(37	)
Recoveries		0		0			5			145			150
Balance, September 30, 2020	$	965		6,260			1,376			931			9,532
For the nine months ended September 30, 2020:
Balance, December 31, 2019	$	857		5,060			1,507			1,140			8,564
Provision for losses		108		1,913			(79	)		(394	)		1,548
Charge-offs		0		(730	)		(74	)		(8	)		(812	)
Recoveries		0		17			22			193			232
Balance, September 30, 2020	$	965		6,260			1,376			931			9,532

The following table summarizes the amount of classified and unclassified loans at September 30, 2021 and December 31, 2020:

	September 30, 2021
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	716		892		57		0		1,665		155,837		157,502
Commercial real estate:
Real estate rental and leasing		8,420		1,768		0		0		10,188		185,979		196,167
Other		10,716		6,486		0		0		17,202		162,331		179,533
Consumer		0		616		55		53		724		42,029		42,753
Commercial business		1,850		1,810		0		0		3,660		52,083		55,743
	$	21,702		11,572		112		53		33,439		598,259		631,698

	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

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 September 30, 2021 and December 31, 2020 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
September 30, 2021
Single family	$	1,072		47		161		1,280		156,222		157,502		0
Commercial real estate:
Real estate rental and leasing		0		0		325		325		195,842		196,167		0
Other		0		0		0		0		179,533		179,533		0
Consumer		219		39		238		496		42,257		42,753		0
Commercial business		0		0		0		0		55,743		55,743		0
	$	1,291		86		724		2,101		629,597		631,698		0
December 31, 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

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 September 30, 2021 and December 31, 2020:

	September 30, 2021						December 31, 2020
(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	$	356		375		0		740		759		0
Commercial real estate:
Real estate rental and leasing		0		0		0		932		1,582		0
Other		192		192		0		211		211		0
Consumer		592		592		0		574		574		0
Loans with an allowance recorded:
Single family		89		89		38		117		117		29
Commercial real estate:
Real estate rental and leasing		325		325		17		166		166		5
Other		167		167		135		175		175		90
Consumer		132		132		88		176		176		100
Commercial business		18		18		8		35		586		14
Total:
Single family		445		464		38		857		876		29
Commercial real estate:
Real estate rental and leasing		325		325		17		1,098		1,748		5
Other		359		359		135		386		386		90
Consumer		724		724		88		750		750		100
Commercial business		18		18		8		35		586		14
	$	1,871		1,890		286		3,126		4,346		238

The following tables summarize average recorded investment and interest income recognized on impaired loans during the three and nine months ended September 30, 2021 and 2020.

	For the Three Months Ended September 30, 2021				For the Nine Months Ended September 30, 2021
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	390		0		564		4
Commercial real estate:
Real estate rental and leasing		78		0		540		0
Other		193		0		199		0
Consumer		610		0		577		6
Loans with an allowance recorded:
Single family		122		0		119		0
Commercial real estate:
Real estate rental and leasing		163		0		123		7
Other		168		0		163		0
Consumer		114		3		138		1
Commercial business		22		0		29		1
Total:
Single family		512		0		683		4
Commercial real estate:
Real estate rental and leasing		241		0		663		7
Other		361		0		362		0
Consumer		724		3		715		7
Commercial business		22		0		29		1
	$	1,860		3		2,452		19

	For the Three Months Ended September 30, 2020				For the Nine Months Ended September 30, 2020
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	606		6		585		23
Commercial real estate:
Real estate rental and leasing		985		0		493		33
Other		401		0		340		2
Consumer		586		3		640		9
Commercial business		4		0		2		0
Loans with an allowance recorded:
Single family		121		0		273		0
Commercial real estate:
Real estate rental and leasing		173		0		177		0
Other		0		0		487		0
Consumer		142		0		169		2
Commercial business		50		1		242		2
Total:
Single family		727		6		858		23
Commercial real estate:
Real estate rental and leasing		1,158		0		670		33
Other		401		0		827		2
Consumer		728		3		809		11
Commercial business		54		1		244		2
	$	3,068		10		3,408		71

At September 30, 2021 and December 31, 2020, non-accruing loans totaled $1.8 million and $2.7 million, respectively, for which the related allowance for loan losses was $0.3 million and $0.2 million, respectively. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which no specific allowance has been recorded, because management determined that the value of the collateral was sufficient to repay the loan, totaled $1.1 million and $2.1 million, at September 30, 2021 and December 31, 2020, respectively. Non-accrual loans also include certain loans that have had terms modified in a TDR.

The non-accrual loans at September 30, 2021 and December 31, 2020 are summarized as follows:

(Dollars in thousands)	September 30, 2021		December 31, 2020
Single family	$	423		502
Commercial real estate:
Real estate rental and leasing		325		1,098
Other		360		386
Consumer		673		689
Commercial business		7		9
	$	1,788		2,684

At September 30, 2021 and December 31, 2020 there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling $1.3 million and $1.5 million, respectively. Of the loans that were restructured as TDRs in the third quarter of 2021, none were classified but performing, and the amount that was non-performing at September 30, 2021 was not material.

The following table summarizes TDRs at September 30, 2021 and December 31, 2020:

	September 30, 2021						December 31, 2020
(Dollars in thousands)	Accruing		Non-Accruing		Total		Accruing		Non-Accruing		Total
Single family	$	22		236		258		355		257		612
Commercial real estate		0		359		359		0		211		211
Consumer		51		588		639		62		568		630
Commercial business		10		0		10		25		0		25
	$	83		1,183		1,266		442		1,036		1,478

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 12 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 12 month period. 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 tables and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the three month and nine month periods ended September 30, 2021 and 2020.

	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
(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	$	38		40		1	$	38		40
Commercial real estate:
Other		0		0		0		1		139		139
Consumer		0		0		0		1		93		94
Commercial business		0		0		0		1		14		14
Total		1	$	38		40		4	$	284		287

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
(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		0	$	0		0		1	$	94		101
Commercial real estate:
Other		0		0		0		2		293		293
Total		0	$	0		0		3	$	387		394

There were no loans that were restructured in the 12 months preceding September 30, 2021 and 2020 that subsequently defaulted during the three and nine months ended September 30, 2021 and 2020.

The Company considers a loan to have defaulted when it becomes 90 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 to specific reserves as needed. Loans that are not collateral-dependent may have additional reserves established if deemed necessary. The reserves for TDRs were $0.2 million, or 2.7%, of the total $9.1 million in loan loss reserves at September 30, 2021 and $0.1 million, or 0.9%, of the total $10.7 million in loan loss reserves at December 31, 2020.

The Coronavirus Aid, Relief, and Economic Security (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 on April 7, 2020. 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 TDRs if the accommodation is granted before December 31, 2021. In accordance with the regulatory guidance, the Bank granted accommodations on certain loans to borrowers who were negatively impacted by the pandemic. At September 30, 2021, the Bank had $25.5 million of loans that had been granted loan accommodations in accordance with Section 4013 of the CARES Act. These accommodations are in addition to the TDRs that are disclosed above. All of the six remaining loans that were granted accommodations are in the hospitality industry and allow the borrowers to make interest only payments for periods up to December 31, 2021. Of these loans, $5.7 million were classified but still accruing at September 30, 2021 and all of these loans were current with their agreed upon payments. The commercial credit department 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 any potential issues that these loans may develop so that risk ratings may be appropriately adjusted in a timely manner. It is anticipated that most of the remaining borrowers that have been granted accommodations will be in a position to resume making their regular loan payments at the end of the accommodation period. Other borrowers may need additional accommodations when their initial accommodation period ends as their operations may need more time to recover from the impact of the pandemic.