Loans and Credit Quality

The following table presents total portfolio loans by portfolio segment and class of financing receivable, based on the Company's asset quality rating ("AQR") criteria:



(In Thousands)	Commercial		Real estate construction one-to-four family		Real estate construction other		Real estate term owner occupied		Real estate term non-owner occupied		Real estate term other		Consumer secured by 1st deeds of trust		Consumer other		Total
March 31, 2019
AQR Pass		$323,263		$34,061		$72,920		$120,469		$297,268		$42,682		$18,259		$24,075		$932,997
AQR Special Mention	3,467		—		—		3,886		17,963		—		—		—		25,316
AQR Substandard	17,434		2,423		—		5,786		930		1,228		457		69		28,327
AQR Doubtful	—		—		—		—		—		—		—		1		1
Subtotal		$344,164		$36,484		$72,920		$130,141		$316,161		$43,910		$18,716		$24,145		$986,641
Less: Unearned origination fees, net of origination costs																	(4,300		)
Total loans																		$982,341
December 31, 2018
AQR Pass		$315,112		$33,729		$72,256		$117,174		$307,126		$40,792		$18,768		$23,595		$928,552
AQR Special Mention	5,116		3,382		—		3,987		18,129		670		140		2		31,426
AQR Substandard	22,192		—		—		5,253		465		577		320		47		28,854
AQR Doubtful	—		—		—		—		—		—		—		1		1
Subtotal		$342,420		$37,111		$72,256		$126,414		$325,720		$42,039		$19,228		$23,645		$988,833
Less: Unearned origination fees, net of origination costs																	(4,487		)
Total loans																		$984,346

Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees and direct loan origination costs. Loan balances are charged-off to the Allowance when management believes that collection of principal is unlikely. Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status. All classes of loans are placed on nonaccrual and considered impaired when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest is brought current in accordance with the terms of the loan agreement. Additionally, certain ongoing performance criteria, which generally includes a performance period of six months, must be met in order for a loan to be returned to accrual status. Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.

Nonaccrual loans: Nonaccrual loans net of government guarantees totaled $18.5 million and $14.7 million at March 31, 2019 and December 31, 2018, respectively. Nonaccrual loans at the periods indicated are presented below by segment:



(In Thousands)	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due		Current			Total
March 31, 2019
Commercial		$261			$1,337			$2,559		$7,529			$11,686
Real estate construction one-to-four family	—			—			—		2,423			2,423
Real estate term owner occupied	393			—			2,418		963			3,774
Real estate term other	—			—			577		650			1,227
Consumer secured by 1st deeds of trust	—			—			—		360			360
Consumer other	—			—			39		7			46
Total nonperforming loans	654			1,337			5,593		11,932			19,516
Government guarantees on nonaccrual loans	—			(269		)	—		(769		)	(1,038		)
Net nonaccrual loans		$654			$1,068			$5,593		$11,163			$18,478
December 31, 2018
Commercial		$1,329			$324			$1,287		$9,731			$12,671
Real estate term owner occupied	—			—			1,694		—			1,694
Real estate term other	—			—			577		—			577
Consumer secured by 1st deeds of trust	—			—			—		220			220
Consumer other	—			—			39		9			48
Total nonperforming loans	1,329			324			3,597		9,960			15,210
Government guarantees on nonaccrual loans	(269		)	—			—		(247		)	(516		)
Net nonaccrual loans		$1,060			$324			$3,597		$9,713			$14,694

Past Due Loans: Past due loans and nonaccrual loans at the periods indicated are presented below by segment:



(In Thousands)	30-59 Days Past Due Still Accruing		60-89 Days Past Due Still Accruing		Greater Than 90 Days Still Accruing		Total Past Due		Nonaccrual		Current		Total
March 31, 2019
Commercial		$809		$534		$—		$1,343		$11,686		$331,135		$344,164
Real estate construction one-to-four family	—		—		—		—		2,423		34,061		36,484
Real estate construction other	268		—		—		268		—		72,652		72,920
Real estate term owner occupied	265		1,141		—		1,406		3,774		124,961		130,141
Real estate term non-owner occupied	—		—		—		—		—		316,161		316,161
Real estate term other	—		—		—		—		1,227		42,683		43,910
Consumer secured by 1st deed of trust	388		—		—		388		360		17,968		18,716
Consumer other	220		—		—		220		46		23,879		24,145
Subtotal		$1,950		$1,675		$—		$3,625		$19,516		$963,500		$986,641
Less: Unearned origination fees, net of origination costs													(4,300		)
Total														$982,341
December 31, 2018
Commercial		$872		$857		$—		$1,729		$12,671		$328,020		$342,420
Real estate construction one-to-four family	—		—		—		—		—		37,111		37,111
Real estate construction other	—		—		—		—		—		72,256		72,256
Real estate term owner occupied	1,197		—		—		1,197		1,694		123,523		126,414
Real estate term non-owner occupied	—		—		—		—		—		325,720		325,720
Real estate term other	—		—		—		—		577		41,462		42,039
Consumer secured by 1st deed of trust	224		100		—		324		220		18,684		19,228
Consumer other	190		—		—		190		48		23,407		23,645
Subtotal		$2,483		$957		$—		$3,440		$15,210		$970,183		$988,833
Less: Unearned origination fees, net of origination costs													(4,487		)
Total														$984,346

Impaired Loans: The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan’s collateral. Nonperforming loans with an outstanding balance of $50,000 or greater are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors.

At March 31, 2019 and December 31, 2018, the recorded investment in loans that are considered to be impaired was $31.1 million and $31.7 million, respectively. The following table presents information about impaired loans by class as of the periods indicated:



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
March 31, 2019
With no related allowance recorded
Commercial - AQR pass		$2,076		$2,076		$—
Commercial - AQR substandard	16,467		17,539		—
Real estate construction one-to-four family - AQR substandard	2,423		2,423		—
Real estate term owner occupied- AQR substandard	5,786		5,786		—
Real estate term non-owner occupied- AQR pass	284		284		—
Real estate term non-owner occupied- AQR substandard	929		929		—
Real estate term other - AQR pass	467		467		—
Real estate term other - AQR substandard	578		578		—
Consumer secured by 1st deeds of trust - AQR pass	128		128		—
Consumer secured by 1st deeds of trust - AQR substandard	241		241		—
Subtotal		$29,379		$30,451		$—



With an allowance recorded
Commercial - AQR substandard		$840		$1,343		$212
Real estate term other - AQR substandard	650		650		54
Consumer secured by 1st deeds of trust - AQR substandard	216		216		39
Subtotal		$1,706		$2,209		$305



Total
Commercial - AQR pass		$2,076		$2,076		$—
Commercial - AQR substandard	17,307		18,882		212
Real estate construction one-to-four family - AQR substandard	2,423		2,423		—
Real estate term owner-occupied - AQR substandard	5,786		5,786		—
Real estate term non-owner occupied - AQR pass	284		284		—
Real estate term non-owner occupied - AQR substandard	929		929		—
Real estate term other - AQR pass	467		467		—
Real estate term other - AQR substandard	1,228		1,228		54
Consumer secured by 1st deeds of trust - AQR pass	128		128		—
Consumer secured by 1st deeds of trust - AQR substandard	457		457		39
Total		$31,085		$32,660		$305



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2018
With no related allowance recorded
Commercial - AQR pass		$80		$80		$—
Commercial - AQR special mention	2,009		2,009		—
Commercial - AQR substandard	21,252		22,303		—
Real estate term owner occupied - AQR substandard	5,253		5,253		—
Real estate term non-owner occupied - AQR pass	295		295		—
Real estate term non-owner occupied - AQR substandard	465		465		—
Real estate term other - AQR pass	486		486		—
Real estate term other - AQR substandard	577		577		—
Consumer secured by 1st deeds of trust - AQR pass	129		129		—
Consumer secured by 1st deeds of trust - AQR substandard	320		320		—
Subtotal		$30,866		$31,917		$—



With an allowance recorded
Commercial - AQR substandard	$848	$1,352	$14
Subtotal	$848	$1,352	$14



Total
Commercial - AQR pass		$80		$80		$—
Commercial - AQR special mention	2,009		2,009		—
Commercial - AQR substandard	22,100		23,655		14
Real estate term owner occupied - AQR substandard	5,253		5,253		—
Real estate term non-owner occupied - AQR pass	295		295		—
Real estate term non-owner occupied - AQR substandard	465		465		—
Real estate term other - AQR pass	486		486		—
Real estate term other - AQR special mention	577		577		—
Consumer secured by 1st deeds of trust - AQR pass	129		129		—
Consumer secured by 1st deeds of trust - AQR substandard	320		320		—
Total		$31,714		$33,269		$14

The unpaid principal balance included in the tables above represents the recorded investment at the dates indicated, plus amounts charged off for book purposes.

The following tables summarize our average recorded investment and interest income recognized on impaired loans for the three-month periods ended March 31, 2019 and 2018:



Three Months Ended March 31,	2019						2018
(In Thousands)	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
With no related allowance recorded
Commercial - AQR pass		$2,082			$33			$—			$—
Commercial - AQR special mention	—			—			2,242			31
Commercial - AQR substandard	16,796			91			18,549			85
Real estate construction one-to-four family - AQR substandard	2,903			—			—			—
Real estate term owner occupied- AQR substandard	5,914			34			4,592			24
Real estate term non-owner occupied- AQR pass	289			5			299			5
Real estate term non-owner occupied- AQR special mention	—			—			89			1
Real estate term non-owner occupied- AQR substandard	931			—			480			7
Real estate term other - AQR pass	477			8			550			10
Real estate term other - AQR substandard	578			—			—			—
Consumer secured by 1st deeds of trust - AQR pass	128			3			136			4
Consumer secured by 1st deeds of trust - AQR substandard	246			2			248			4
Subtotal		$30,344			$176			$27,185			$171



With an allowance recorded
Commercial - AQR substandard		$844		$—		$7,205		$—
Commercial - AQR doubtful	—		—		55		—
Real estate term other - AQR substandard	660		—		—		—
Consumer secured by 1st deeds of trust - AQR substandard	217		—		242		—
Subtotal		$1,721		$—		$7,502		$—



Total
Commercial - AQR pass		$2,082		$33		$—		$—
Commercial - AQR special mention	—		—		2,242		31
Commercial - AQR substandard	17,640		91		25,754		85
Commercial - AQR doubtful	—		—		55		—
Real estate construction one-to-four family - AQR substandard	2,903		—		—		—
Real estate term owner-occupied - AQR substandard	5,914		34		4,592		24
Real estate term non-owner occupied - AQR pass	289		5		299		5
Real estate term non-owner occupied - AQR special mention	—		—		89		1
Real estate term non-owner occupied - AQR substandard	931		—		480		7
Real estate term other - AQR pass	477		8		550		10
Real estate term other - AQR substandard	1,238		—		—		—
Consumer secured by 1st deeds of trust - AQR pass	128		3		136		4
Consumer secured by 1st deeds of trust - AQR substandard	463		2		490		4
Total Impaired Loans		$32,065		$176		$34,687		$171

Troubled Debt Restructurings: Loans classified as troubled debt restructurings (“TDR”) totaled $13.2 million and $14.8 million at March 31, 2019 and December 31, 2018, respectively. A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession that it would not grant otherwise. The Company has granted a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:

Rate Modification: A modification in which the interest rate is changed.

Term Modification: A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Payment Modification: A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time is included in this category.

Combination Modification: Any other type of modification, including the use of multiple categories above.

AQR pass graded loans included above in the impaired loan data are loans classified as TDRs. By definition, TDRs are considered impaired loans. All of the Company's TDRs are included in impaired loans.

The following table presents the breakout between newly restructured loans that occurred during the three months ended March 31, 2019 and restructured loans that occurred prior to 2019 that are still included in portfolio loans:



	Accrual Status		Nonaccrual Status		Total Modifications
(In Thousands)	Accrual Status		Nonaccrual Status		Total Modifications
New Troubled Debt Restructurings
Subtotal		$—		$—		$—
Existing Troubled Debt Restructurings		$3,368		$9,799		$13,167
Total		$3,368		$9,799		$13,167

There were no newly restructured loans that occurred during the three months ended March 31, 2019. The following table presents newly restructured loans that occurred during the three months ended March 31, 2018, by concession (terms modified):



		March 31, 2018
	Number of Contracts	Rate Modification		Term Modification		Payment Modification		Combination Modification		Total Modifications
(In Thousands)	Number of Contracts	Rate Modification		Term Modification		Payment Modification		Combination Modification		Total Modifications
Pre-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	4		$—		$—		$2,704		$—		$2,704
Real estate term owner occupied- AQR substandard	2	—		—		1,694		—		1,694
Total	6		$—		$—		$4,398		$—		$4,398
Post-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	4		$—		$—		$1,738		$—		$1,738
Real estate term owner occupied- AQR substandard	2	—		—		1,694		—		1,694
Total	6		$—		$—		$3,432		$—		$3,432

The Company had no commitments to extend additional credit to borrowers whose terms have been modified in TDRs. There were no charge-offs in the three months ended March 31, 2019 on loans that were newly classified as TDRs during the same period.

All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the Allowance. There was one TDR with specific impairment at March 31, 2019 and one at December 31, 2018.

The Company had no TDRs that subsequently defaulted within the first twelve months of restructure, during the twelve-month period ending March 31, 2018. The following table presents TDRs that occurred during the twelve-month period ending March 31, 2019 that subsequently defaulted during the three months ended March 31, 2019:



		March 31, 2019
	Number of Contracts	Recorded Investment
(In Thousands)	Number of Contracts	Recorded Investment
Troubled Debt Restructurings that Subsequently Defaulted:
Commercial - AQR substandard	3		$1,146
Real estate term owner occupied - AQR substandard	2	1,694
Total	5		$2,840