Loans Receivable

Loans receivable are summarized as follows at the dates indicated:



	March 31, 2019		December 31, 2018
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	194,648	$	194,141
Permanent non-owner occupied	156,684		147,825
	351,332		341,966

Multifamily	167,843		169,355

Commercial real estate	384,686		373,819

Construction/land:
One-to-four family residential	84,191		86,604
Multifamily	87,748		83,642
Commercial	22,400		18,300
Land	6,965		6,740
	201,304		195,286

Business	33,513		30,486
Consumer	14,336		12,970
Total loans	1,153,014		1,123,882

Less:
Loans in process ("LIP") ⁽¹⁾	86,794		86,453
Deferred loan fees, net	701		1,178
Allowance for loan and lease losses ("ALLL")	13,808		13,347
Loans receivable, net	$	1,051,711	$	1,022,904

^{_______________}

⁽¹⁾ LIP is the amount of committed but undisbursed funds on construction loans.

At March 31, 2019, loans totaling $480.7 million were pledged to secure borrowings from the FHLB of Des Moines compared to $471.4 million at December 31, 2018.

Credit Quality Indicators. The Company assigns a risk rating to all credit exposures based on a risk rating system designed to define the basic characteristics and identified risk elements of each credit extension. The Company utilizes a nine‑point risk rating system. A description of the general characteristics of the risk grades is as follows:

•

Grades 1 through 5: These grades are considered to be “pass” credits. These include assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Bank. 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.

•

Grade 6: These credits, classified as “special mention”, 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. If left uncorrected, these potential weaknesses may result in deterioration in the Company’s credit position at a future date.


•	Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well defined weaknesses which jeopardize the orderly liquidation of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.


•	Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.


•	Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near term recovery and no realistic strengthening action of significance is pending.

As of March 31, 2019, and December 31, 2018, the Company had no loans rated as doubtful or loss. The following tables represent a summary of loans at March 31, 2019, and December 31, 2018 by type and risk category:



	March 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Risk Rating:
Pass	$	349,894	$	167,843	$	384,149	$	112,380	$	33,513	$	14,292	$	1,062,071
Special mention	795		—		537		2,130		—		—		3,462
Substandard	643		—		—		—		—		44		687
Total loans	$	351,332	$	167,843	$	384,686	$	114,510	$	33,513	$	14,336	$	1,066,220

_______________

⁽¹⁾ Net of LIP.



	December 31, 2018
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Risk Rating:
Pass	$	339,310	$	169,355	$	372,690	$	108,854	$	30,486	$	12,926	$	1,033,621
Special mention	1,737		—		782		—		—		—		2,519
Substandard	919		—		326		—		—		44		1,289
Total loans	$	341,966	$	169,355	$	373,798	$	108,854	$	30,486	$	12,970	$	1,037,429

_______________

⁽¹⁾ Net of LIP.

ALLL. When the Company classifies problem assets as either substandard or doubtful, pursuant to Federal regulations, it may establish a specific reserve in an amount deemed prudent to address the risk specifically or may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to the particular problem assets. When an insured institution classifies problem assets as a loss, pursuant to Federal regulations, it is required to charge-off such assets in the period in which they are deemed uncollectible. The determination as to the classification of the Company’s assets and the amount of valuation allowances is subject to review by bank regulators, who can require the establishment of additional loss allowances.

Loan grades are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss. The grades for watch and special mention are assigned to loans which have been criticized based upon known characteristics such as periodic payment delinquency or stale financial information from the borrower and/or guarantors. Loans identified as criticized (watch and special mention) or classified (substandard, doubtful or loss) are subject to problem loan reporting every three months.

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 March 31, 2019
	One-to-Four Family Residential			Multifamily			Commercial Real Estate		Construction/ Land		Business		Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	3,387		$	1,680		$	4,777	$	2,331	$	936	$	236		$	13,347
Charge-offs	—			—			—		—		—		—			—
Recoveries	24			—			—		—		—		37			61
(Recapture) provision	(379		)	(101		)	32		801		94		(47		)	400
Ending balance	$	3,032		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,808

ALLL by category:
General reserve	$	2,982		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,758
Specific reserve	50			—			—		—		—		—			50

Loans: ⁽¹⁾
Total loans	$	351,332		$	167,843		$	384,686	$	114,510	$	33,513	$	14,336		$	1,066,220
Loans collectively evaluated for impairment ⁽²⁾	345,569			167,843			382,530		114,510		33,513		14,292			1,058,257
Loans individually evaluated for impairment ⁽³⁾	5,763			—			2,156		—		—		44			7,963

____________

⁽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 March 31, 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
Charge-offs	—			—		—		—			—		—		—
Recoveries	4,240			—		14		—			—		—		4,254
(Recapture) provision	(3,840		)	64		58		(362		)	46		34		(4,000		)
Ending balance	$	3,237		$	1,884	$	4,490	$	2,454		$	740	$	331	$	13,136

ALLL by category:
General reserve	$	3,168		$	1,884	$	4,464	$	2,454		$	740	$	331	$	13,041
Specific reserve	69			—		26		—			—		—		95

Loans: ⁽¹⁾
Total loans	$	295,895		$	190,392	$	366,231	$	117,554		$	24,237	$	11,131	$	1,005,440
Loans collectively evaluated for impairment ⁽²⁾	283,866			189,264		363,059		117,554			24,237		11,038		989,018
Loans individually evaluated for impairment ⁽³⁾	12,029			1,128		3,172		—			—		93		16,422

_____________

⁽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 March 31, 2019, past due loans were 0.03% of total loans receivable, net of LIP. In comparison, past due loans were 0.08% of total loans receivable, net of LIP at December 31, 2018. The following tables represent a summary of the aging of loans by type at the dates indicated:



	Loans Past Due as of March 31, 2019
	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	$	107	$	—	$	—	$	107	$	194,541	$	194,648
Non-owner occupied	166		—		—		166		156,518		156,684
Multifamily	—		—		—		—		167,843		167,843
Commercial real estate	—		—		—		—		384,686		384,686
Construction/land	—		—		—		—		114,510		114,510
Total real estate	273		—		—		273		1,018,098		1,018,371
Business	—		—		—		—		33,513		33,513
Consumer	44		—		—		44		14,292		14,336
Total loans	$	317	$	—	$	—	$	317	$	1,065,903	$	1,066,220

________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at March 31, 2019.

⁽²⁾ Net of LIP.



	Loans Past Due as of December 31, 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	$	223	$	—	$	272	$	495	$	193,646	$	194,141
Non-owner occupied	—		—		—		—		147,825		147,825
Multifamily	—		—		—		—		169,355		169,355
Commercial real estate	—		—		326		326		373,472		373,798
Construction/land	—		—		—		—		108,854		108,854
Total real estate	223		—		598		821		993,152		993,973
Business	—		—		—		—		30,486		30,486
Consumer	—		—		—		—		12,970		12,970
Total loans	$	223	$	—	$	598	$	821	$	1,036,608	$	1,037,429

_________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at December 31, 2018.

⁽²⁾ Net of LIP.

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



	March 31, 2019		December 31, 2018
	(In thousands)
One-to-four family residential	$	107	$	382
Commercial real estate	—		326
Consumer	44		44
Total nonaccrual loans	$	151	$	752

During the three months ended March 31, 2019, interest income that would have been recognized had these nonaccrual loans been performing in accordance with their original terms was $6,000. For the three months ended March 31, 2018, foregone interest on nonaccrual loans was $6,000.

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



	March 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Performing ⁽²⁾	$	351,225	$	167,843	$	384,686	$	114,510	$	33,513	$	14,292	$	1,066,069
Nonperforming ⁽³⁾	107		—		—		—		—		44		151
Total loans	$	351,332	$	167,843	$	384,686	$	114,510	$	33,513	$	14,336	$	1,066,220

_____________


⁽¹⁾	Net of LIP.


⁽²⁾	There were $194.5 million of owner-occupied one-to-four family residential loans and $156.7 million of non-owner occupied one-to-four family residential loans classified as performing.


⁽³⁾	The $107,000 one-to-four family residential loan classified as nonperforming is owner-occupied.



	December 31, 2018
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total⁽¹⁾
	(In thousands)
Performing ⁽²⁾	$	341,584	$	169,355	$	373,472	$	108,854	$	30,486	$	12,926	$	1,036,677
Nonperforming ⁽³⁾	382		—		326		—		—		44		752
Total loans	$	341,966	$	169,355	$	373,798	$	108,854	$	30,486	$	12,970	$	1,037,429

_____________

⁽¹⁾Net of LIP.

⁽²⁾There were $193.8 million of owner-occupied one-to-four family residential loans and $147.8 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽³⁾The $382,000 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 March 31, 2019, or December 31, 2018.

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



	March 31, 2019
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	847	$	1,030	$	—
Non-owner occupied	2,040		2,040		—
Commercial real estate	2,156		2,156		—
Consumer	44		72		—
Total	5,087		5,298		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	511		558		18
Non-owner occupied	2,365		2,365		32
Total	2,876		2,923		50

Total impaired loans:
One-to-four family residential:
Owner occupied	1,358		1,588		18
Non-owner occupied	4,405		4,405		32
Commercial real estate	2,156		2,156		—
Consumer	44		72		—
Total	$	7,963	$	8,221	$	50

_________________

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

⁽²⁾ Contractual loan principal balance.



	December 31, 2018
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,308	$	1,477	$	—
Non-owner occupied	2,375		2,375		—
Commercial real estate	2,499		2,499		—
Consumer	87		141		—
Total	6,269		6,492		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	513		560		22
Non-owner occupied	3,126		3,148		37
Commercial real estate	241		241		3
Total	3,880		3,949		62

Total impaired loans:
One-to-four family residential:
Owner occupied	1,821		2,037		22
Non-owner occupied	5,501		5,523		37
Commercial real estate	2,740		2,740		3
Consumer	87		141		—
Total	$	10,149	$	10,441	$	62

_________________

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

⁽²⁾ Contractual loan principal balance.

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31, 2019				Three Months Ended March 31, 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	$	1,078	$	15	$	1,314	$	25
Non-owner occupied	2,208		31		7,658		127
Multifamily	—		—		1,131		18
Commercial real estate	2,328		38		1,062		19
Consumer	66		1		94		2
Total	5,680		85		11,259		191

Loans with an allowance:
One-to-four family residential:
Owner occupied	512		9		521		9
Non-owner occupied	2,746		30		3,304		47
Commercial real estate	121		—		2,121		34
Total	3,379		39		5,946		90

Total impaired loans:
One-to-four family residential:
Owner occupied	1,590		24		1,835		34
Non-owner occupied	4,954		61		10,962		174
Multifamily	—		—		1,131		18
Commercial real estate	2,449		38		3,183		53
Consumer	66		1		94		2
Total	$	9,059	$	124	$	17,205	$	281

Troubled Debt Restructurings. Certain loan modifications are accounted for as troubled debt restructured loans (“TDRs”). At March 31, 2019, the TDR portfolio totaled $7.8 million. At December 31, 2018, the TDR portfolio totaled $9.4 million. At both dates, all TDRs were performing according to their modified repayment terms.

At March 31, 2019, 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 March 31, 2019 and 2018.

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



	Three Months Ended March 31, 2019			Three Months Ended March 31, 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
Principal and interest with interest rate concession and advancement of maturity date	6	824	824	—	—	—
Advancement of maturity date	3	694	694	—	—	—
Total	9	1,518	1,518	—	—	—

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 months ended March 31, 2019, and March 31, 2018, no loans that had been modified in the previous 12 months defaulted.