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Note 3 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2021

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 3:

LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at December 31, 2021 and 2020 include:

	December 31,
	2021			2020
Real estate - residential mortgage:
One to four family units	$	102,791,228		$	115,799,200
Multi-family		76,565,222			90,028,775
Real estate - construction		124,848,581			70,847,330
Real estate - commercial		381,119,167			305,673,212
Commercial loans		115,794,005			144,326,350
Consumer and other loans		21,467,734			26,733,546
Total loans		822,585,937			753,408,413
Less:
Allowance for loan losses		(10,588,562	)		(9,617,024	)
Deferred loan fees/costs, net		(484,763	)		(1,642,118	)
Net loans	$	811,512,612		$	742,149,271

Classes of loans by aging at December 31, 2021 and 2020 were as follows:

As of December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	138	$	27	$	1,083	$	1,248	$	101,543	$	102,791	$	-
Multi-family		-		-		-		-		76,565		76,565		-
Real estate - construction		-		-		2,052		2,052		122,797		124,849		-
Real estate - commercial		-		-		247		247		380,872		381,119		-
Commercial loans		17		-		1,747		1,764		114,030		115,794		-
Consumer and other loans		8		-		-		8		21,460		21,468		-
Total	$	163	$	27	$	5,129	$	5,319	$	817,267	$	822,586	$	-

As of December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	623	$	1,058	$	1,071	$	2,752	$	113,047	$	115,799	$	-
Multi-family		-		-		-		-		90,029		90,029		-
Real estate - construction		1,239		-		4,189		5,428		65,419		70,847		-
Real estate - commercial		264		76		161		501		305,172		305,673		-
Commercial loans		6		1		4,784		4,791		139,535		144,326		-
Consumer and other loans		10		1		21		32		26,702		26,734		-
Total	$	2,142	$	1,136	$	10,226	$	13,504	$	739,904	$	753,408	$	-

Nonaccruing loans are summarized as follows:

	December 31,
	2021		2020
Real estate - residential mortgage:
One to four family units	$	1,470,357	$	3,086,159
Multi-family		-		-
Real estate - construction		2,891,243		6,239,326
Real estate - commercial		3,339,996		3,932,241
Commercial loans		1,934,494		5,249,782
Consumer and other loans		89,450		121,090
Total	$	9,725,540	$	18,628,598

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the years ended December 31, 2021, 2020 and 2019:

As of December 31, 2021
	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,132		$	3,624		$	1,445		$	1,058		$	1,129		$	571		$	658		$	9,617
Provision charged to expense		1,242			781			(310	)		(308	)		(116	)		(103	)		(386	)	$	800
Losses charged off		(121	)		(1	)		(27	)		-			(36	)		(193	)		-		$	(378	)
Recoveries		285			3			4			-			200			58			-		$	550
Balance, end of year	$	2,538		$	4,407		$	1,112		$	750		$	1,177		$	333		$	272		$	10,589
Ending balance: individually evaluated for impairment	$	656		$	85		$	49		$	-		$	46		$	15		$	-		$	851
Ending balance: collectively evaluated for impairment	$	1,882		$	4,322		$	1,063		$	750		$	1,131		$	318		$	272		$	9,738
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans:
Ending balance: individually evaluated for impairment	$	2,891		$	1,334		$	1,452		$	-		$	1,935		$	171		$	-		$	7,783
Ending balance: collectively evaluated for impairment	$	121,958		$	377,649		$	101,339		$	76,565		$	113,770		$	21,297		$	-		$	812,578
Ending balance: loans acquired with deteriorated credit quality	$	-		$	2,136		$	-		$	-		$	89		$	-		$	-		$	2,225

As of December 31, 2020
	Construction			Commercial Real Estate		One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,749		$	2,267	$	1,001		$	746	$	1,129		$	443		$	273	$	7,608
Provision charged to expense		121			1,350		440			312		669			323			385	$	3,600
Losses charged off		(738	)		-		(2	)		-		(709	)		(261	)		-	$	(1,710	)
Recoveries		-			7		6			-		40			66			-	$	119
Balance, end of year	$	1,132		$	3,624	$	1,445		$	1,058	$	1,129		$	571		$	658	$	9,617
Ending balance: individually evaluated for impairment	$	114		$	117	$	112		$	-	$	62		$	15		$	-	$	420
Ending balance: collectively evaluated for impairment	$	1,018		$	3,507	$	1,333		$	1,058	$	1,066		$	556		$	658	$	9,196
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-	$	-		$	-	$	1		$	-		$	-	$	1
Loans:
Ending balance: individually evaluated for impairment	$	6,239		$	1,810	$	3,110		$	-	$	5,111		$	202		$	-	$	16,472
Ending balance: collectively evaluated for impairment	$	64,608		$	301,453	$	112,689		$	90,029	$	139,083		$	26,532		$	-	$	734,394
Ending balance: loans acquired with deteriorated credit quality	$	-		$	2,410	$	-		$	-	$	132		$	-		$	-	$	2,542

As of December 31, 2019
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	2,306		$	2,093		$	1,297		$	641	$	1,160		$	373		$	126	$	7,996
Provision charged to expense		(809	)		265			(32	)		105		225			299			147	$	200
Losses charged off		-			(122	)		(272	)		-		(381	)		(280	)		-	$	(1,055	)
Recoveries		252			31			8			-		125			51			-	$	467
Balance, end of year	$	1,749		$	2,267		$	1,001		$	746	$	1,129		$	443		$	273	$	7,608
Ending balance: individually evaluated for impairment	$	553		$	24		$	197		$	-	$	299		$	21		$	-	$	1,094
Ending balance: collectively evaluated for impairment	$	1,196		$	2,243		$	804		$	746	$	830		$	422		$	273	$	6,514
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-	$	-		$	-		$	-	$	-
Loans:
Ending balance: individually evaluated for impairment	$	4,742		$	650		$	2,613		$	-	$	908		$	220		$	-	$	9,133
Ending balance: collectively evaluated for impairment	$	72,567		$	297,318		$	116,211		$	87,448	$	112,956		$	30,446		$	-	$	716,946
Ending balance: loans acquired with deteriorated credit quality	$	-		$	2,651		$	-		$	-	$	184		$	-		$	-	$	2,835

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following summarizes impaired loans as of and for the years ended December 31, 2021 and 2020:

As of December 31, 2021
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
*Loans without a specific valuation allowance*
Real estate - residential mortgage:
One to four family units	$	1,347	$	1,347	$	-	$	1,868	$	-
Multi-family		-		-		-		-		-
Real estate - construction		2,025		2,025		-		3,285		-
Real estate - commercial		2,976		2,976		-		3,269		10
Commercial loans		1,837		1,837		-		2,808		-
Consumer and other loans		89		89		-		97		-
*Loans with a specific valuation allowance*
Real estate - residential mortgage:
One to four family units	$	105	$	105	$	49	$	145	$	-
Multi-family		-		-		-		-		-
Real estate - construction		866		866		656		891		-
Real estate - commercial		494		494		85		602		-
Commercial loans		187		223		46		313		-
Consumer and other loans		82		82		15		94		-
Total
Real estate - residential mortgage:
One to four family units	$	1,452	$	1,452	$	49	$	2,013	$	-
Multi-family		-		-		-		-		-
Real estate - construction		2,891		2,891		656		4,176		-
Real estate - commercial		3,470		3,470		85		3,871		10
Commercial loans		2,024		2,060		46		3,121		-
Consumer and other loans		171		171		15		191		-
Total	$	10,008	$	10,044	$	851	$	13,372	$	10

As of December 31, 2020
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
*Loans without a specific valuation allowance*
Real estate - residential mortgage:
One to four family units	$	2,780	$	2,780	$	-	$	1,199	$	-
Multi-family		-		-		-		-		-
Real estate - construction		5,081		5,081		-		423		-
Real estate - commercial		3,419		3,419		-		3,152		4
Commercial loans		4,902		4,902		-		455		-
Consumer and other loans		100		100		-		110		13
*Loans with a specific valuation allowance*
Real estate - residential mortgage:
One to four family units	$	330	$	330	$	112	$	1,183	$	-
Multi-family		-		-		-		-		-
Real estate - construction		1,158		3,129		114		4,093		-
Real estate - commercial		801		801		117		365		-
Commercial loans		341		341		63		792		-
Consumer and other loans		102		102		15		136		-
Total
Real estate - residential mortgage:
One to four family units	$	3,110	$	3,110	$	112	$	2,382	$	-
Multi-family		-		-		-		-		-
Real estate - construction		6,239		8,210		114		4,516		-
Real estate - commercial		4,220		4,220		117		3,517		4
Commercial loans		5,243		5,243		63		1,247		-
Consumer and other loans		202		202		15		246		13
Total	$	19,014	$	20,985	$	421	$	11,908	$	17

At December 31, 2021, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (TDR). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Bank include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

In March 2020, our regulators issued a statement titled “Interagency Statement on Loan Modifications and Reporting for Financial institutions with Customers Affected by the Coronavirus” that encouraged financial institutions to work prudently with borrowers who were expected to have difficulty in meeting payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further clarifies that qualified loan modifications are exempt by law from being classified as a TDR as defined by GAAP from March 1, 2020 until December 31, 2020. In December 2020, the Economic Aid to Hard Hit Small Businesses, Non-Profits and Ventures Act was enacted, which extended the CARES Act provisions until January 1, 2022. The Bank continues to work with impacted entities in the form of modifications, payment deferrals, extensions of repayment terms and/or other delays in payments, as necessary.

Due to the before mentioned regulatory changes, there were no troubled debt restructuring charge offs or increases to the allowance for loan losses related to TDRs during 2021 or 2020.

The following summarizes information regarding troubled debt restructurings by class as of and for the years ended December 31, 2021 and 2020:

	December 31,
	2021		2020
Real estate - residential mortgage:
One to four family units	$	176,576	$	1,178,876
Multi-family		-		-
Real estate - construction		839,419		3,700,084
Real estate - commercial		592,515		893,992
Commercial loans		278,649		368,310
Total	$	1,887,159	$	6,141,262

As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:

Pass- This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention- This rating represents loans that are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard- This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Doubtful- This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Real estate-Residential 1-4 family: The residential 1-4 family real estate loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income.

Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Real estate-Construction: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations. Included in this category as of December 31, 2021 is $1.3 million in Small Business Administration PPP loans compared to $37.3 million as of December 31, 2020. These loans were originated during 2020 and the first quarter of 2021 with the majority of the loans having an original duration of two years or less.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

The following table provides information about the credit quality of the loan portfolio using the Bank’s internal rating system as of December 31, 2021 and 2020:

As of December 31, 2021
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	121,892	$	342,560	$	100,830	$	75,166	$	107,872	$	21,297	$	769,617
Special Mention		-		24,589		68		1,399		5,087		-		31,143
Substandard		2,957		13,970		1,893		-		2,835		171		21,826
Doubtful		-		-		-		-		-		-		-
Total	$	124,849	$	381,119	$	102,791	$	76,565	$	115,794	$	21,468	$	822,586

As of December 31, 2020
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	64,531	$	262,771	$	110,615	$	90,029	$	130,874	$	26,532	$	685,352
Special Mention		-		4,442		-		-		123		-		4,565
Substandard		6,316		38,460		5,184		-		13,329		202		63,491
Doubtful		-		-		-		-		-		-		-
Total	$	70,847	$	305,673	$	115,799	$	90,029	$	144,326	$	26,734	$	753,408

The tables include purchased credit impaired loan amounts. At December 31, 2021 and 2020, purchased credit impaired loans rated as “Substandard” were $2.1 and $2.5 million, respectively.

The weighted average interest rate on loans as of December 31, 2020 and 2019 was 4.50% and 4.45%, respectively.

The Bank serviced mortgage loans for others amounting to $20,621 and $24,868 as of December 31, 2021 and 2020, respectively. The Bank serviced commercial loans for others amounting to $79,730,096 and $62,261,930 as of December 31, 2021 and 2020, respectively.