Loans Receivable

Loans receivable are summarized as follows at the dates indicated:



	September 30, 2018		December 31, 2017
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	184,698	$	148,304
Permanent non-owner occupied	143,226		130,351
	327,924		278,655

Multifamily	176,521		184,902

Commercial real estate	360,485		361,842

Construction/land:
One-to-four family residential	84,912		87,404
Multifamily	80,607		108,439
Commercial	21,385		5,325
Land	7,113		36,405
	194,017		237,573

Business	29,655		23,087
Consumer	12,419		9,133
Total loans	1,101,021		1,095,192

Less:
Loans in process ("LIP")	91,232		92,498
Deferred loan fees, net	1,116		1,150
Allowance for loan and lease losses ("ALLL")	13,116		12,882
Loans receivable, net	$	995,557	$	988,662

At September 30, 2018, loans totaling $475.9 million were pledged to secure borrowings from the FHLB of Des Moines compared to $422.6 million at December 31, 2017.

ALLL. The Company maintains an ALLL as a reserve against probable and inherent risk of losses in its loan portfolios. The ALLL is comprised of a general reserve component for loans evaluated collectively for loss and a specific reserve component for loans evaluated individually. When an issue is identified, and it is determined that the loan needs to be classified as nonperforming and/or impaired, an evaluation of the discounted expected cash flows is done, and an appraisal may be obtained on the collateral. Based on this evaluation, additional provision for loan loss or charge-offs is recorded prior to the end of the financial reporting period.

The following tables summarize changes in the ALLL and loan portfolio by loan type and impairment method at the dates and for the periods shown:



	At or For the Three Months Ended September 30, 2018
	One-to-Four Family Residential			Multifamily			Commercial Real Estate			Construction/ Land			Business		Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	3,265		$	1,928		$	4,494		$	2,121		$	674	$	272		$	12,754
Recoveries	2			—			—			160			—		—			162
Provision (recapture)	265			(189		)	(16		)	(84		)	236		(12		)	200
Ending balance	$	3,532		$	1,739		$	4,478		$	2,197		$	910	$	260		$	13,116

	At or For the Nine Months Ended September 30, 2018
	One-to-Four Family Residential			Multifamily			Commercial Real Estate			Construction/ Land			Business		Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	2,837		$	1,820		$	4,418		$	2,816		$	694	$	297		$	12,882
Recoveries	4,248			—			14			172			—		—			4,434
(Recapture) provision	(3,553		)	(81		)	46			(791		)	216		(37		)	(4,200		)
Ending balance	$	3,532		$	1,739		$	4,478		$	2,197		$	910	$	260		$	13,116

ALLL by category:
General reserve	$	3,446		$	1,739		$	4,471		$	2,197		$	910	$	260		$	13,023
Specific reserve	86			—			7			—			—		—			93

Loans: ⁽¹⁾
Total loans	$	327,924		$	176,521		$	360,261		$	103,009		$	29,655	$	12,419		$	1,009,789
Loans collectively evaluated for impairment ⁽²⁾	318,353			175,405			357,335			103,009			29,655		12,330			996,087
Loans individually evaluated for impairment ⁽³⁾	9,571			1,116			2,926			—			—		89			13,702

____________

⁽¹⁾ Net of LIP.

⁽²⁾ Loans collectively evaluated for general reserves.

⁽³⁾ Loans individually evaluated for specific reserves.



	At or For the Three Months Ended September 30, 2017
	One-to-Four Family Residential			Multifamily		Commercial Real Estate			Construction/ Land		Business		Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	2,627		$	1,231	$	3,733		$	2,942	$	457	$	295	$	11,285
Recoveries	247			—		78			—		—		—		325
(Recapture) provision	(157		)	472		(68		)	40		211		2		500
Ending balance	$	2,717		$	1,703	$	3,743		$	2,982	$	668	$	297	$	12,110

	At or For the Nine Months Ended September 30, 2017
	One-to-Four Family Residential			Multifamily		Commercial Real Estate			Construction/ Land		Business		Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	2,551		$	1,199	$	3,893		$	2,792	$	237	$	279	$	10,951
Recoveries	280			—		78			—		—		1		359
(Recapture) provision	(114		)	504		(228		)	190		431		17		800
Ending balance	$	2,717		$	1,703	$	3,743		$	2,982	$	668	$	297	$	12,110

ALLL by category:
General reserve	$	2,582		$	1,703	$	3,723		$	2,982	$	668	$	297	$	11,955
Specific reserve	135			—		20			—		—		—		155

Loans: ⁽¹⁾
Total loans	$	266,447		$	173,681	$	319,872		$	153,914	$	22,243	$	9,301	$	945,458
Loans collectively evaluated for impairment ⁽²⁾	251,141			172,541		316,656			153,914		22,243		9,205		925,700
Loans individually evaluated for impairment ⁽³⁾	15,306			1,140		3,216			—		—		96		19,758

_____________

⁽¹⁾ Net of LIP.

⁽²⁾ Loans collectively evaluated for general reserves.

⁽³⁾ Loans individually evaluated for specific reserves.

Past Due Loans. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. At September 30, 2018, past due loans were 0.08% of total loans receivable, net of LIP. In comparison, past due loans were 0.01% of total loans receivable, net of LIP at December 31, 2017. The following tables represent a summary of the aging of loans by type at the dates indicated:



	Loans Past Due as of September 30, 2018
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ^{(1) (2)}
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	496	$	—	$	—	$	496	$	184,202	$	184,698
Non-owner occupied	—		—		—		—		143,226		143,226
Multifamily	—		—		—		—		176,521		176,521
Commercial real estate	325		—		—		325		359,936		360,261
Construction/land	—		—		—		—		103,009		103,009
Total real estate	821		—		—		821		966,894		967,715
Business	—		—		—		—		29,655		29,655
Consumer	—		—		—		—		12,419		12,419
Total loans	$	821	$	—	$	—	$	821	$	1,008,968	$	1,009,789

________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at September 30, 2018.

⁽²⁾ Net of LIP.



	Loans Past Due as of December 31, 2017
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ^{(1) (2)}
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	101	$	—	$	—	$	101	$	148,203	$	148,304
Non-owner occupied	—		—		—		—		130,351		130,351
Multifamily	—		—		—		—		184,902		184,902
Commercial real estate	—		—		—		—		361,299		361,299
Construction/land	—		—		—		—		145,618		145,618
Total real estate	101		—		—		101		970,373		970,474
Business	—		—		—		—		23,087		23,087
Consumer	—		—		—		—		9,133		9,133
Total loans	$	101	$	—	$	—	$	101	$	1,002,593	$	1,002,694

_________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at December 31, 2017.

⁽²⁾ Net of LIP.

Nonaccrual Loans. The following table is a summary of nonaccrual loans by loan type at the dates indicated:



	September 30, 2018		December 31, 2017
	(In thousands)
One-to-four family residential	$	113	$	128
Commercial real estate	325		—
Consumer	46		51
Total nonaccrual loans	$	484	$	179

During the three and nine months ended September 30, 2018, interest income that would have been recognized had these nonaccrual loans been performing in accordance with their original terms was $4,000 and $10,000, respectively. For the three and nine months ended September 30, 2017, foregone interest on nonaccrual loans was $3,000 and $21,000, respectively.

The following tables summarize the loan portfolio by type and payment status at the dates indicated:



	September 30, 2018
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Performing ⁽²⁾	$	327,811	$	176,521	$	359,936	$	103,009	$	29,655	$	12,373	$	1,009,305
Nonperforming ⁽³⁾	113		—		325		—		—		46		484
Total loans	$	327,924	$	176,521	$	360,261	$	103,009	$	29,655	$	12,419	$	1,009,789

_____________


⁽¹⁾	Net of LIP.


⁽²⁾	There were $184.6 million of owner-occupied one-to-four family residential loans and $143.2 million of non-owner occupied one-to-four family residential loans classified as performing.


⁽³⁾	The $113,000 of one-to-four family residential loans classified as nonperforming are all owner-occupied.



	December 31, 2017
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total⁽¹⁾
	(In thousands)
Performing ⁽²⁾	$	278,527	$	184,902	$	361,299	$	145,618	$	23,087	$	9,082	$	1,002,515
Nonperforming ⁽³⁾	128		—		—		—		—		51		179
Total loans	$	278,655	$	184,902	$	361,299	$	145,618	$	23,087	$	9,133	$	1,002,694

_____________

⁽¹⁾Net of LIP.

⁽²⁾There were $148.2 million of owner-occupied one-to-four family residential loans and $130.3 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽³⁾The $128,000 of one-to-four family residential loans classified as nonperforming are all owner-occupied.

Impaired Loans. A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the original loan document. There were no funds committed to be advanced in connection with impaired loans at either September 30, 2018, or December 31, 2017.

The following tables present a summary of loans individually evaluated for impairment by loan type at the dates indicated:



	September 30, 2018
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,045	$	1,213	$	—
Non-owner occupied	4,857		4,857		—
Multifamily	1,116		1,116		—
Commercial real estate	2,556		2,556		—
Consumer	89		141		—
Total	9,663		9,883		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	516		562		23
Non-owner occupied	3,153		3,174		63
Commercial real estate	370		370		7
Total	4,039		4,106		93

Total impaired loans:
One-to-four family residential:
Owner occupied	1,561		1,775		23
Non-owner occupied	8,010		8,031		63
Multifamily	1,116		1,116		—
Commercial real estate	2,926		2,926		7
Consumer	89		141		—
Total	$	13,702	$	13,989	$	93

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.



	December 31, 2017
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,321	$	1,516	$	—
Non-owner occupied	8,409		8,409		—
Multifamily	1,134		1,134		—
Commercial real estate	1,065		1,065		—
Consumer	94		144		—
Total	12,023		12,268		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	522		568		5
Non-owner occupied	3,310		3,332		111
Commercial real estate	2,129		2,129		19
Total	5,961		6,029		135

Total impaired loans:
One-to-four family residential:
Owner occupied	1,843		2,084		5
Non-owner occupied	11,719		11,741		111
Multifamily	1,134		1,134		—
Commercial real estate	3,194		3,194		19
Consumer	94		144		—
Total	$	17,984	$	18,297	$	135

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.

The following tables present the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,049	$	18	$	1,182	$	55
Non-owner occupied	5,112		83		6,385		298
Multifamily	1,119		19		1,125		55
Commercial real estate	2,402		42		1,732		133
Consumer	90		2		92		6
Total	9,772		164		10,516		547

Loans with an allowance:
One-to-four family residential:
Owner occupied	517		9		519		26
Non-owner occupied	3,160		40		3,232		122
Commercial real estate	373		5		1,247		22
Total	4,050		54		4,998		170

Total impaired loans:
One-to-four family residential:
Owner occupied	1,566		27		1,701		81
Non-owner occupied	8,272		123		9,617		420
Multifamily	1,119		19		1,125		55
Commercial real estate	2,775		47		2,979		155
Consumer	90		2		92		6
Total	$	13,822	$	218	$	15,514	$	717



	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,658	$	22	$	1,886	$	69
Non-owner occupied	11,395		158		13,445		485
Multifamily	1,143		19		1,251		56
Commercial real estate	2,693		49		2,818		135
Consumer	97		2		99		6
Total	16,986		250		19,499		751

Loans with an allowance:
One-to-four family residential:
Owner occupied	1,099		10		1,495		22
Non-owner occupied	3,343		47		3,773		128
Commercial real estate	745		10		749		31
Construction/land	—		—		124		—
Total	5,187		67		6,141		181

Total impaired loans:
One-to-four family residential:
Owner occupied	2,757		32		3,381		91
Non-owner occupied	14,738		205		17,218		613
Multifamily	1,143		19		1,251		56
Commercial real estate	3,438		59		3,567		166
Construction/land	—		—		124		—
Consumer	97		2		99		6
Total	$	22,173	$	317	$	25,640	$	932

Troubled Debt Restructurings. Certain loan modifications are accounted for as troubled debt restructured loans (“TDRs”). At September 30, 2018, the TDR portfolio totaled $13.2 million. At December 31, 2017, the TDR portfolio totaled $17.8 million. At both dates, all TDRs were performing according to their modified repayment terms.

At September 30, 2018, the Company had no commitments to extend additional credit to borrowers whose loan terms have been modified in TDRs. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment as part of the calculation of the ALLL. No loans accounted for as TDRs were charged-off to the ALLL for the three months ended September 30, 2018 and 2017.

The following tables present TDR modifications for the periods indicated and their recorded investment prior to and after the modification:



	Three Months Ended September 30, 2018					Nine Months Ended September 30, 2018
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
One-to-four family residential
Advancement of maturity date	1	563		563		1	563		563
Commercial
Advancement of maturity date	—	$	—	$	—	1	$	1,124	$	1,124
Total	1	$	563	$	563	2	$	1,687	$	1,687



	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
One-to-four family residential
Principal and interest with interest rate concession and advancement of maturity date	1	$	524	$	524	8	$	2,492	$	2,492
Total	1	$	524	$	524	8	$	2,492	$	2,492

TDRs that default after they have been modified are typically evaluated individually on a collateral basis. Any additional impairment is charged to the ALLL. For the three and nine months ended September 30, 2018, and September 30, 2017, no loans that had been modified in the previous 12 months defaulted.

Credit Quality Indicators. The Company utilizes a nine-category risk rating system and assigns a risk rating for all credit exposures. The risk rating system is designed to define the basic characteristics and identify risk elements of each credit extension. Credits risk rated 1 through 5 are considered to be “pass” credits. Pass credits include assets, such as cash secured loans with funds on deposit with the Bank, where there is virtually no credit risk. Pass credits also include credits that are on the Company’s watch list, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower’s financial capacity and threaten their ability to fulfill debt obligations in the future. Credits classified as special mention are risk rated 6 and possess weaknesses that deserve management’s close attention. Special mention assets do not expose the Company to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. Substandard credits are risk rated 7. An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.

Substandard assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful are risk rated 8 and have all the weaknesses inherent in those credits classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are risk rated 9 and are considered uncollectible and cannot be justified as a viable asset for the Company. There were no loans classified as doubtful or loss at September 30, 2018, and December 31, 2017.

The following tables represent a summary of loans by type and risk category at the dates indicated:



	September 30, 2018
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Risk Rating:
Pass	$	325,509	$	176,521	$	359,021	$	103,009	$	29,655	$	12,373	$	1,006,088
Special mention	1,762		—		370		—		—		—		2,132
Substandard	653		—		870		—		—		46		1,569
Total loans	$	327,924	$	176,521	$	360,261	$	103,009	$	29,655	$	12,419	$	1,009,789

_____________

⁽¹⁾ Net of LIP.



	December 31, 2017
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Risk Rating:
Pass	$	275,653	$	184,902	$	358,285	$	145,618	$	23,087	$	8,893	$	996,438
Special mention	2,329		—		2,459		—		—		188		4,976
Substandard	673		—		555		—		—		52		1,280
Total loans	$	278,655	$	184,902	$	361,299	$	145,618	$	23,087	$	9,133	$	1,002,694

_____________

⁽¹⁾ Net of LIP.