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Note 3 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2022

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

Note 3: Loans and allowance for loan losses

A summary of loans by major category as of June 30, 2022 and December 31, 2021 is as follows:

	*June 30, 2022*			*December 31, 2021*
	(Dollars in thousands)
First mortgage loans
1-4 family residential	$	87,586		$	88,028
Multi-family		3,399			3,497
Commercial		4,128			4,604
Total first mortgage loans		95,113			96,129
Consumer loans		179			372
Total loans		95,292			96,501
Net deferred loan costs		855			812
Allowance for loan losses		(769	)		(779	)
Total loans, net	$	95,378		$	96,534

First mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $14.5 million and $15.8 million at June 30, 2022 and December 31, 2021, respectively. Custodial escrow balances maintained in connection with the loans serviced were $248,000 and $270,000 at June 30, 2022 and December 31, 2021, respectively.

In the normal course of business, loans are made to directors and officers of the Bank (related parties). The terms of these loans, including interest rate and collateral, are similar to those prevailing for comparable transactions with other customers and do not involve more than a normal risk of collectability. At June 30, 2022 and December 31, 2021, such borrowers were indebted to the Bank in the aggregate amount of $528,000 and $556,000, respectively.

Changes in the allowance for loan losses as of and for the three and six months ended months ended June 30, 2022 and 2021 were as follows:

	*June 30, 2022*
	*1-4 family*
	*residential*			*Multi-family*			*Commercial*		*Consumer*		*Total*
	(Dollars in thousands)
Three months ended
Beginning balance	$	729		$	27		$	26	$	3	$	785
Charge-offs		—			—			—		—		—
Recoveries		—			—			—		—		—
Net recoveries (charge-offs)		—			—			—		—		—
(Release of) Provision for loan losses		(16	)		(1	)		—		1		(16	)
Ending balance	$	713		$	26		$	26	$	4	$	769

	*June 30, 2022*
	*1-4 family*
	*residential*		*Multi-family*			*Commercial*		*Consumer*			*Total*
	(Dollars in thousands)
Six months ended
Beginning balance	$	675	$	69		$	25	$	10		$	779
Charge-offs		—		—			—		—			—
Recoveries		6		—			—		—			6
Net recoveries (charge-offs)		6		—			—		—			6
(Release of) Provision for loan losses		32		(43	)		1		(6	)		(16	)
Ending balance	$	713	$	26		$	26	$	4		$	769

	*June 30, 2021*
	*1-4 family*
	*residential*			*Multi-family*		*Commercial*			*Consumer*			*Total*
	(Dollars in thousands)
Three months ended
Beginning balance	$	710		$	26	$	30		$	106		$	872
Charge-offs		—			—		—			(99	)		(99	)
Recoveries		2			—		—			—			2
Net recoveries (charge-offs)		2			—		—			(99	)		(97	)
(Release of) Provision for loan losses		(5	)		22		(3	)		3			17
Ending balance	$	707		$	48	$	27		$	10		$	792

	*June 30, 2021*
	*1-4 family*
	*residential*			*Multi-family*		*Commercial*			*Consumer*			*Total*
	(Dollars in thousands)
Six months ended
Beginning balance	$	798		$	29	$	38		$	5		$	870
Charge-offs		—			—		—			(99	)		(99	)
Recoveries		4			—		—			—			4
Net recoveries (charge-offs)		4			—		—			(99	)		(95	)
(Release of) Provision for loan losses		(95	)		19		(11	)		104			17
Ending balance	$	707		$	48	$	27		$	10		$	792

The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2022 and December 31, 2021, were as follows:

	*Collectively evaluated*				*Individually evaluated*				*Total*
			*Recorded*				*Recorded*				*Recorded*
	*Allowance for*		*investment in*		*Allowance for*		*investment in*		*Allowance for*		*investment in*
	*loan losses*		*loans*		*loan losses*		*loans*		*loan losses*		*loans*
	(Dollars in thousands)
June 30, 2022
1-4 family residential	$	609	$	86,591	$	104	$	995	$	713	$	87,586
Multi-family		26		3,399		—		—		26	$	3,399
Commercial		26		4,128		—		—		26	$	4,128
Consumer		4		179		—		—		4	$	179
Total	$	665	$	94,297	$	104	$	995	$	769	$	95,292
December 31, 2021
1-4 family residential	$	557	$	86,892	$	118	$	1,136	$	675	$	88,028
Multi-family		69		3,497		—		—		69	$	3,497
Commercial		25		4,604		—		—		25	$	4,604
Consumer		10		372		—		—		10	$	372
Total	$	661	$	95,365	$	118	$	1,136	$	779	$	96,501

The Bank evaluates collectability based on payment activity and other factors. The Bank uses a graded loan rating system as a means of identifying potential problem loans, as follows:

Pass

Loans in these categories are performing as expected with low to average risk.

Special Mention

Loans in this category are internally designated by management as “watch loans.” These loans are starting to show signs of potential weakness and are closely monitored by management.

Substandard

Loans in this category are internally designated by management as “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged. Substandard loans present a distinct possibility that the Bank will sustain losses if such weaknesses are not corrected.

Doubtful

Loans classified as doubtful have all the weaknesses inherent in those designated as “substandard” with the added characteristic that the weaknesses may make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial loans. In addition, the Bank performs an independent review of a significant portion of the commercial loan portfolio. Management uses the results of the independent review as part of its annual review process.

The following table presents loan balances based on risk rating as of June 30, 2022 and December 31, 2021:

	*Pass*		*Special Mention*		*Substandard*		*Doubtful*		*Total loans*
	(Dollars in thousands)
June 30, 2022
1-4 family residential	$	87,467	$	44	$	75	$	—	$	87,586
Multi-family		3,399		—		—		—		3,399
Commercial		4,128		—		—		—		4,128
Consumer		179		—		—		—		179
Total	$	95,173	$	44	$	75	$	—	$	95,292
December 31, 2021
1-4 family residential	$	87,881	$	45	$	102	$	—	$	88,028
Multi-family		3,497		—		—		—		3,497
Commercial		4,604		—		—		—		4,604
Consumer		372		—		—		—		372
Total	$	96,354	$	45	$	102	$	—	$	96,501

The aging of the Bank’s loan portfolio as of June 30, 2022 and December 31, 2021, is as follows:

	31-89 Days Past Due and Accruing		Greater than 90 Days Past Due and Accruing		Non-Accrual		Total Past Due and Non-Accrual		Current		Total Loan Balance
	(Dollars in thousands)
June 30, 2022
1-4 family residential	$	13	$	123	$	40	$	176	$	87,410	$	87,586
Multi-family		—		—		—		—		3,399		3,399
Commercial		—		—		—		—		4,128		4,128
Consumer		—		—		—		—		179		179
Total	$	13	$	123	$	40	$	176	$	95,116	$	95,292

December 31, 2021
1-4 family residential	$	—	$	41	$	102	$	143	$	87,885	$	88,028
Multi-family		—		—		—		—		3,497		3,497
Commercial		—		—		—		—		4,604		4,604
Consumer		—		—		—		—		372		372
Total	$	—	$	41	$	102	$	143	$	96,358	$	96,501

Loans individually evaluated for impairment as of June 30, 2022 and December 31, 2021, were as follows:

	*Recorded investment*		*Unpaid principal balance*		*Related allowance*
	(Dollars in thousands)
June 30, 2022
With no related allowance recorded
1-4 family residential	$	322	$	525	$	—
Multi-family		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	322	$	525	$	—
With a related allowance recorded
1-4 family residential	$	673	$	680	$	104
Multi-family		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	673	$	680	$	104
Balance at June 30, 2022	$	995	$	1,205	$	104
December 31, 2021
With no related allowance recorded
1-4 family residential	$	355	$	595	$	—
Multi-family		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	355	$	595	$	—
With a related allowance recorded
1-4 family residential	$	781	$	797	$	118
Multi-family		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	781	$	797	$	118
Balance at December 31, 2021	$	1,136	$	1,392	$	118

The average recorded investment and interest income recognized for the loans individually evaluated for impairment for the three months ended June 30, 2022 and 2021, were as follows:

	*Average recorded investment*		*Interest income recognized*
	(Dollars in thousands)
June 30, 2022
With no related allowance recorded
1-4 family residential	$	324	$	7
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	324	$	7
With a related allowance recorded
1-4 family residential	$	677	$	8
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	677	$	8
Balance for the Three Months Ended June 30, 2022	$	1,001	$	15
June 30, 2021
With no related allowance recorded
1-4 family residential	$	1,339	$	18
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	1,339	$	18
With a related allowance recorded
1-4 family residential	$	984	$	10
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	984	$	10
Balance for the Three Months Ended June 30, 2021	$	2,323	$	28

The average recorded investment and interest income recognized for the loans individually evaluated for impairment for the six months ended June 30, 2022 and 2021, were as follows:

	*Average recorded investment*		*Interest income recognized*
	(Dollars in thousands)
June 30, 2022
With no related allowance recorded
1-4 family residential	$	326	$	13
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	326	$	13
With a related allowance recorded
1-4 family residential	$	680	$	15
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	680	$	15
Balance for the six months ended June 30, 2022	$	1,006	$	28
June 30, 2021
With no related allowance recorded
1-4 family residential	$	1,424	$	37
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	1,424	$	37
With a related allowance recorded
1-4 family residential	$	990	$	22
Multi-family		—		—
Commercial		—		—
Consumer		—		—
Total	$	990	$	22
Balance for the six months ended June 30, 2021	$	2,414	$	59

Troubled debt restructurings provide for modifications to repayment terms; more specifically, modifications to loan interest rates. Management performs an impairment analysis at the time of restructuring and periodically thereafter. Any reserve required is recorded through a provision to the allowance for loan losses.

There were no new troubled debt restructurings during the three and six months ended months ended June 30, 2022 or 2021. In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed into law. Among other things, the CARES Act suspended the requirements related to accounting for TDRs for certain loan modifications related to the COVID-19 pandemic.

The Bank has minimal direct exposure to consumer, commercial, and other small businesses that may be negatively impacted by COVID-19, but management has analyzed and increased the qualitative factors in these and other loan categories for incurred, but not yet identified loan losses attributable to COVID-19. As of June 30, 2022, management did not see significant disruption with existing customers related to COVID-19. However, during the years ended December 31, 2020 and 2021, management did grant customer requests to defer payments on 50 loans with unpaid balances of $9.7 million. As of June 30, 2022, all COVID-19 loan modifications have returned to repayment. Management has also assisted small businesses that could benefit from the CARES Act, particularly in the SBA’s Paycheck Protection Program (“PPP”). As of June 30, 2022, all PPP loans have been forgiven by the SBA.