Note 6 - Allowance for Loan Losses and Credit Quality Information

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

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

NOTE 6 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, 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
Provision for losses	$	(56	)		(1,524	)		(424	)		(115	)		(2,119	)
Charge-offs		0			(36	)		(42	)		0			(78	)
Recoveries		0			653			58			66			777
Balance, December 31, 2021	$	974			6,388			981			936			9,279
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	$	36			280			83			7			406
General reserves		938			6,108			898			929			8,873
Balance, December 31, 2021	$	974			6,388			981			936			9,279
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 December 31, 2021:
Individually reviewed for impairment	$	340			3,757			546			7			4,650
Collectively reviewed for impairment		162,982			393,111			41,099			60,158			657,350
Ending balance	$	163,322			396,868			41,645			60,165			662,000

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

	December 31, 2021
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	410		791		56		0		1,257		162,065		163,322
Commercial real estate:
Real estate rental and leasing		16,012		4,753		0		0		20,765		188,901		209,666
Other		6,824		9,571		0		0		16,395		170,807		187,202
Consumer		0		475		21		50		546		41,099		41,645
Commercial business		1,933		1,813		0		0		3,746		56,419		60,165
	$	25,179		17,403		77		50		42,709		619,291		662,000

	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 December 31, 2021 and 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
December 31, 2021
Single family	$	864		65		153		1,082		162,240		163,322		0
Commercial real estate:
Real estate rental and leasing		198		0		0		198		209,468		209,666		0
Other		226		3,402		0		3,628		183,574		187,202		0
Consumer		174		89		122		385		41,260		41,645		0
Commercial business		0		0		0		0		60,165		60,165		0
	$	1,462		3,556		275		5,293		656,707		662,000		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 for the years ended December 31, 2021 and 2020:

	December 31, 2021
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	253		272		0		502		2
Commercial real estate:
Real estate rental and leasing		0		0		0		432		0
Other		189		189		0		197		0
Consumer		419		419		0		545		9
Loans with an allowance recorded:
Single family		87		87		36		113		0
Commercial real estate:
Real estate rental and leasing		0		0		0		98		0
Other		3,568		3,568		280		844		142
Consumer		127		127		83		136		2
Commercial business		7		7		7		25		0
Total:
Single family		340		359		36		615		2
Commercial real estate:
Real estate rental and leasing		0		0		0		530		0
Other		3,757		3,757		280		1,041		142
Consumer		546		546		83		681		11
Commercial business		7		7		7		25		0
	$	4,650		4,669		406		2,892		155

	December 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest 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

At December 31, 2021 and 2020, non-accruing loans totaled $4.6 million and $2.7 million, respectively, for which the related allowance for loan losses was $0.4 million and $0.2 million, respectively. 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 $0.9 million and $2.1 million at December 31, 2021 and 2020, 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 $0.3 million and $0.2 million in 2021 and 2020, respectively. For the years ended December 31, 2021 and 2020, the Company recognized interest income on these loans of $0.2 million and $0.1 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-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, 2021 and 2020:

(Dollars in thousands)	2021		2020
Single family	$	340		502
Commercial real estate:
Real estate rental and leasing		0		1,098
Other		3,757		386
Consumer		517		689
Commercial business		7		9
	$	4,621		2,684

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.

At December 31, 2021 and 2020, there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling $1.1 million and $1.5 million, respectively. Had these loans been performing in accordance with their original terms throughout 2021 and 2020, the Company would have recorded gross interest income of $0.1 million in both years. During 2021 and 2020 the amount of interest income received on these loans was not material. For the loans that were modified in 2021, none were classified and performing and $0.3 million were non-performing at December 31, 2021.

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

(Dollars in thousands)	2021		2020
Single family	$	254		612
Commercial real estate:
Other		355		211
Consumer		442		630
Commercial business		0		25
	$	1,051		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. 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, 2021 and 2020:

	Year ended December 31, 2021						Year ended December 31, 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		1	$	38		40		1	$	94		101
Commercial real estate:
Other		1		139		139		2		293		293
Consumer		1		93		94		0		0		0
Commercial business		1		14		14		0		0		0
Total		4	$	284		287		3	$	387		394

There were no loans that were restructured during the years ended December 31, 2021 and 2020 that subsequently defaulted during 2021 and 2020, respectively.

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 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 $0.2 million, or 2.6%, of the total $9.3 million in allowance for loan losses at December 31, 2021, and $0.1 million, or 0.9%, of the total $10.7 million in allowance for loan losses at December 31, 2020.

Section 4013 of the CARES Act temporarily allowed the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDRs if the accommodation was 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 December 31, 2021, the Company had no loans with outstanding loan accommodations in accordance with Section 4013 of the CARES Act and at December 31, 2020 had $34.6 million of outstanding loans that had been granted accommodations. These accommodations were in addition to the TDRs that are disclosed above.