NOTE 3 - LOANS

Loans, net consist of the following as of September 30, 2017 and December 31, 2016 (in thousands):



	September 30, 2017		December 31, 2016
Real estate
Commercial	$	736,487	$	547,711
Construction		37,723		29,447
Multifamily		187,753		117,373
One-to-four family		25,777		26,480
		987,740		721,011

Commercial and industrial		346,738		315,870
Consumer		47,171		18,825
Total loans		1,381,649		1,055,706
Deferred fees		(820)		(1,160)
Allowance for loan and lease losses		(15,075)		(11,815)
Balance at the end of the period	$	1,365,754	$	1,042,731

The following table presents the activity in the allowance for loan and lease losses by segment for the three and nine months ending September 30, 2017 and 2016 (dollars in thousands):



For the three months ended September 30, 2017	Commercial Real Estate		Commercial & Industrial		Construction		Multifamily		One-to-four Family		Consumer		Total
Allowance for loan and lease losses:
Beginning balance	$	6,487	$	5,560	$	557	$	958	$	85	$	262	$	13,909
Provision (credit) for loan and lease losses		637		443		(33)		34		2		117		1,200
Charge-offs		-		-		-		-		-		(34)		(34)
Recoveries		-		-		-		-		-		-		-
Total ending allowance balance	$	7,124	$	6,003	$	524	$	992	$	87	$	345	$	15,075

For the three months ended September 30, 2016	Commercial Real Estate		Commercial & Industrial		Construction		Multifamily		One-to-four Family		Consumer		Total
Allowance for loan and lease losses:
Beginning balance	$	4,835	$	5,562	$	458	$	404	$	385	$	60	$	11,704
Provision (credit) for loan and lease losses		440		(352)		33		35		5		29		190
Charge-offs		-		(123)		-		-		(274)		-		(397)
Recoveries		-		-		-		-		-		-		-
Total ending allowance balance	$	5,275	$	5,087	$	491	$	439	$	116	$	89	$	11,497

NOTE 3 – LOANS (Continued)



For the nine months ended September 30, 2017	Commercial Real Estate		Commercial & Industrial		Construction		Multifamily		One-to-four Family		Consumer		Total
Allowance for loan and lease losses:
Beginning balance	$	5,206	$	5,364	$	409	$	620	$	109	$	107	$	11,815
Provision (credit) for loan and lease losses		1,918		859		115		372		(22)		318		3,560
Charge-offs		-		(220)		-		-		-		(80)		(300)
Recoveries		-		-		-		-		-		-		-
Total ending allowance balance	$	7,124	$	6,003	$	524	$	992	$	87	$	345	$	15,075

For the nine months ended September 30, 2016	Commercial Real Estate		Commercial & Industrial		Construction		Multifamily		One-to-four Family		Consumer		Total
Allowance for loan and lease losses:
Beginning balance	$	3,650	$	4,254	$	589	$	986	$	444	$	19	$	9,942
Provision (credit) for loan and lease losses		1,625		1,007		(98)		(547)		(57)		70		2,000
Charge-offs		-		(174)		-		-		(274)		-		(448)
Recoveries		-		-		-		-		3		-		3
Total ending allowance balance	$	5,275	$	5,087	$	491	$	439	$	116	$	89	$	11,497

The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2017 and December 31, 2016 (dollars in thousands):



September 30, 2017	Commercial Real Estate		Commercial & Industrial		Construction		Multifamily		One-to-four Family		Consumer		Total

Allowance for and lease loan losses:
Individually evaluated for impairment	$	-	$	366	$	-	$	-	$	-	$	63	$	429
Collectively evaluated for impairment		7,124		5,637		524		992		87		282		14,646
Total ending allowance balance	$	7,124	$	6,003	$	524	$	992	$	87	$	345	$	15,075

Loans:
Individually evaluated for impairment	$	6,299	$	4,775	$	-	$	-	$	3,594	$	125	$	14,793
Collectively evaluated for impairment		730,188		341,963		37,723		187,753		22,183		47,046		1,366,856
Total ending loan balance	$	736,487	$	346,738	$	37,723	$	187,753	$	25,777	$	47,171	$	1,381,649

NOTE 3 - LOANS (Continued)



December 31, 2016	Commercial Real Estate		Commercial & Industrial		Construction		Multifamily		One-to-four Family		Consumer		Total

Allowance for loan and lease losses:
Individually evaluated for impairment	$	-	$	366	$	-	$	-	$	10	$	-	$	376
Collectively evaluated for impairment		5,206		4,998		409		620		99		107		11,439
Total ending allowance balance	$	5,206	$	5,364	$	409	$	620	$	109	$	107	$	11,815

Loans:
Individually evaluated for impairment	$	5,504	$	4,915	$	-	$	-	$	1,130	$	-	$	11,549
Collectively evaluated for impairment		542,207		310,955		29,447		117,373		25,350		18,825		1,044,157
Total ending loan balance	$	547,711	$	315,870	$	29,447	$	117,373	$	26,480	$	18,825	$	1,055,706

The following table presents loans individually evaluated for impairment recognized as of September 30, 2017 and December 31, 2016 (dollars in thousands):



	September 30, 2017
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan and Lease Losses Allocated
With an allowance recorded:
Commercial & industrial	$	8,783	$	3,660	$	366
Consumer		125		125		63
Total	$	8,908	$	3,785	$	429

Without an allowance recorded:
Commercial real estate	$	6,768	$	6,299	$	-
Commercial & industrial		1,115		1,115		-
One-to-four family		3,871		3,594		-
Total	$	11,754	$	11,008	$	-

NOTE 3 - LOANS (Continued)


	December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan and Lease Losses Allocated
With an allowance recorded:
Commercial & industrial	$	8,783	$	3,660	$	366
One-to-four family		694		565		10
Total	$	9,477	$	4,225	$	376

Without an allowance recorded:
Commercial real estate	$	5,974	$	5,504	$	-
Commercial & industrial		1,255		1,255		-
One-to-four family		713		565		-
Total	$	7,942	$	7,324	$	-

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of and for the three month periods ended September 30, 2017 and 2016 (in thousands):



	For the three months ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With an allowance recorded:
Commercial & industrial	$	3,660	$	-	$	-	$	-
One-to-four family		-		-		564		7
Consumer		125		-		-		-
Total	$	3,785	$	-	$	564	$	7

Without an allowance recorded:
Commercial real estate	$	6,307	$	50	$	11,463	$	121
Commercial & industrial		1,130		12		1,300		13
One-to-four family		3,604		37		1,087		6
Total	$	11,041	$	99	$	13,850	$	140

NOTE 3 - LOANS (Continued)

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of and for the nine month periods ended September 30, 2017 and 2016 (in thousands):



	For the nine months ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With an allowance recorded:
Commercial & industrial	$	3,660	$	-	$	-	$	-
One-to-four family		-		-		564		16
Consumer		127		4		-		-
Total	$	3,787	$	4	$	564	$	16

Without an allowance recorded:
Commercial real estate	$	6,380	$	227	$	11,587	$	382
Commercial & industrial		1,185		36		1,355		41
One-to-four family		3,616		96		1,087		17
Total	$	11,181	$	359	$	14,029	$	440

Interest on non-accrual loans not recognized was $62,000 and $14,000 for the three months ended September 30, 2017 and September 30, 2016. Interest on non-accrual loans not recognized was $173,000 and $61,000 for the nine months ended September 30, 2017 and September 30, 2016.

Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following tables present the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of September 30, 2017 and December 31, 2016 (dollars in thousands):



September 30, 2017	Nonaccrual		Loans Past Due Over 90 Days Still Accruing

Commercial real estate	$	841	$	-
Commercial & industrial		3,660		-
One-to-four family		2,466		-
Consumer		125		-
Total	$	7,092	$	-

NOTE 3 - LOANS (Continued)

The following tables present the aging of the recorded investment in past due loans by class of loans as of September 30, 2017 and December 31, 2016 (dollars in thousands):



September 30, 2017	30-59 Days		60-89 Days		Greater than 90 days		Total Past Due		Loans not Past Due		Total
Commercial real estate	$	-	$	-	$	841	$	841	$	735,646	$	736,487
Commercial & industrial		88		-		3,660		3,748		342,990		346,738
Construction		-		-		-		-		37,723		37,723
Multifamily		-		-		-		-		187,753		187,753
One-to-four family		-		-		-		-		25,777		25,777
Consumer		109		-		125		234		46,937		47,171
Total	$	197	$	-	$	4,626	$	4,823	$	1,376,826	$	1,381,649



December 31, 2016	30-59 Days		60-89 Days		Greater than 90 days		Total Past Due		Loans not Past Due		Total
Commercial real estate	$	-	$	958	$	-	$	958	$	546,753	$	547,711
Commercial & industrial		14		3,922		-		3,936		311,934		315,870
Construction		-		-		-		-		29,447		29,447
Multifamily		-		-		-		-		117,373		117,373
One-to-four family		-		-		-		-		26,480		26,480
Consumer		-		34		-		34		18,791		18,825
Total	$	14	$	4,914	$	-	$	4,928	$	1,050,778	$	1,055,706

Troubled Debt Restructurings:

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Included in impaired loans at September 30, 2017 and December 31, 2016, were $7.7 million and $7.9 million of loans modified in troubled debt restructurings. The Bank has not allocated specific reserves to those customers with loans modified in troubled debt restructurings as of September 30, 2017, down from $10 thousand allocated at December 31, 2016. The Bank has not committed to lend additional amounts as of September 30, 2017 and December 31, 2016, to customers with outstanding loans that are classified as troubled debt restructurings. During the three and nine months ended September 30, 2017 and September 30, 2016, there were no loans modified as troubled debt restructurings, and there were no payment defaults on any loans previously identified as troubled debt restructurings for which there was a payment default within twelve months following the modification. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank’s internal underwriting policy.

Credit Quality Indicators:

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes all loans individually by classifying the loans as to credit risk at least annually. An analysis is performed on a quarterly basis for loans classified as special mention, substandard, or doubtful. The Bank uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

NOTE 3 - LOANS (Continued)

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (dollars in thousands):



September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate	$	727,068	$	7,399	$	2,020	$	-	$	736,487
Commercial & industrial		334,663		8,415		3,660		-		346,738
Construction		37,723		-		-		-		37,723
Multifamily		187,753		-		-		-		187,753
Total	$	1,287,207	$	15,814	$	5,680	$	-	$	1,308,701



December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate	$	542,206	$	4,293	$	1,212	$	-	$	547,711
Commercial & industrial		309,295		2,915		3,660		-		315,870
Construction		29,447		-		-		-		29,447
Multifamily		117,373		-		-		-		117,373
Total	$	998,321	$	7,208	$	4,872	$	-	$	1,010,401

For one-to-four family loans and consumer loans, the Bank evaluates credit quality based on the aging status of the loan, which was previously presented, and by performance status. Non-performing loans are loans past due over 90 days or more still accruing interests and loans on non-accrual status. The following table presents the recorded investment in one-to-four family and consumer loans based on performance status as of September 30, 2017 and December 31, 2016 (dollars in thousands):



September 30, 2017	Performing		Non-Performing		Total
One-to-four family	$	23,311	$	2,466	$	25,777
Consumer		47,046		125		47,171
Total	$	70,357	$	2,591	$	72,948



December 31, 2016	Performing		Non-Performing		Total
One-to-four family	$	26,480	$	-	$	26,480
Consumer		18,825		-		18,825
Total	$	45,305	$	-	$	45,305

December 31, 2016

Nonaccrual

Loans Past Due Over 90 Days Still Accruing

Commercial & industrial