Loans and Credit Quality | 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 September 30, 2018 AQR Pass $301,757 $36,119 $61,857 $120,902 $322,051 $40,889 $19,525 $22,495 $925,595 AQR Special Mention 6,279 — — 4,484 18,300 — 199 16 29,278 AQR Substandard 25,096 — — 4,780 469 577 478 62 31,462 AQR Doubtful — — — — — 27 — — 27 Subtotal $333,132 $36,119 $61,857 $130,166 $340,820 $41,493 $20,202 $22,573 $986,362 Less: Unearned origination fees, net of origination costs (4,355 ) Total loans $982,007 December 31, 2017 AQR Pass $277,371 $31,201 $80,093 $127,059 $307,780 $39,777 $21,846 $19,895 $905,022 AQR Special Mention 4,921 — — 2,095 11,051 634 3 22 18,726 AQR Substandard 31,222 — — 2,888 482 — 767 2 35,361 Subtotal $313,514 $31,201 $80,093 $132,042 $319,313 $40,411 $22,616 $19,919 $959,109 Less: Unearned origination fees, net of origination costs (4,156 ) Total loans $954,953 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 $16.4 million and $21.2 million at September 30, 2018 and December 31, 2017 , respectively. Nonaccrual loans at the periods indicated are presented below by segment: (In Thousands) 30-59 Days 60-89 Days Greater Than Current Total September 30, 2018 Commercial $121 $600 $2,742 $11,271 $14,734 Real estate term owner occupied — — 1,694 — 1,694 Real estate term other — — 26 — 26 Consumer secured by 1st deeds of trust — — 226 — 226 Consumer other — — 40 8 48 Total nonperforming loans 121 600 4,728 11,279 16,728 Government guarantees on nonaccrual loans — — (62 ) (217 ) (279 ) Net nonaccrual loans $121 $600 $4,666 $11,062 $16,449 December 31, 2017 Commercial $810 $— $2,652 $16,455 $19,917 Real estate term owner occupied — — — 1,331 1,331 Consumer secured by 1st deeds of trust — — 378 — 378 Total nonperforming loans 810 — 3,030 17,786 21,626 Government guarantees on nonaccrual loans — — (94 ) (373 ) (467 ) Net nonaccrual loans $810 $— $2,936 $17,413 $21,159 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 September 30, 2018 Commercial $1,098 $— $— $1,098 $14,734 $317,300 $333,132 Real estate construction one-to-four family — — — — — 36,119 36,119 Real estate construction other — — — — — 61,857 61,857 Real estate term owner occupied 211 738 — 949 1,694 127,523 130,166 Real estate term non-owner occupied — — — — — 340,820 340,820 Real estate term other — 577 — 577 26 40,890 41,493 Consumer secured by 1st deed of trust — — 152 152 226 19,824 20,202 Consumer other 22 10 — 32 48 22,493 22,573 Subtotal $1,331 $1,325 $152 $2,808 $16,728 $966,826 $986,362 Less: Unearned origination fees, net of origination costs (4,355 ) Total $982,007 December 31, 2017 Commercial $503 $— $240 $743 $19,917 $292,854 $313,514 Real estate construction one-to-four family — — — — — 31,201 31,201 Real estate construction other 90 — — 90 — 80,003 80,093 Real estate term owner occupied 966 — — 966 1,331 129,745 132,042 Real estate term non-owner occupied — — — — — 319,313 319,313 Real estate term other — — — — — 40,411 40,411 Consumer secured by 1st deed of trust 363 — — 363 378 21,875 22,616 Consumer other 161 53 12 226 — 19,693 19,919 Subtotal $2,083 $53 $252 $2,388 $21,626 $935,095 $959,109 Less: Unearned origination fees, net of origination costs (4,156 ) Total $954,953 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 September 30, 2018 and December 31, 2017 , the recorded investment in loans that are considered to be impaired was $35.4 million and $32.0 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 September 30, 2018 With no related allowance recorded Commercial - AQR special mention $2,105 $2,105 $— Commercial - AQR substandard 23,608 25,148 — Real estate term owner occupied- AQR special mention 1,008 1,008 — Real estate term owner occupied- AQR substandard 4,781 4,781 — Real estate term non-owner occupied- AQR pass 319 319 — Real estate term non-owner occupied- AQR substandard 469 469 — Real estate term other - AQR pass 504 504 — Real estate term other - AQR substandard 577 577 — Consumer secured by 1st deeds of trust - AQR pass 131 131 — Consumer secured by 1st deeds of trust - AQR substandard 252 252 — Subtotal $33,754 $35,294 $— With an allowance recorded Commercial - AQR substandard $1,454 $1,958 $323 Consumer secured by 1st deeds of trust - AQR substandard 226 226 49 Subtotal $1,680 $2,184 $372 Total Commercial - AQR special mention $2,105 $2,105 $— Commercial - AQR substandard 25,062 27,106 323 Real estate term owner-occupied - AQR special mention 1,008 1,008 — Real estate term owner-occupied - AQR substandard 4,781 4,781 — Real estate term non-owner occupied - AQR pass 319 319 — Real estate term non-owner occupied - AQR substandard 469 469 — Real estate term other - AQR pass 504 504 — Real estate term other - AQR substandard 577 577 — Consumer secured by 1st deeds of trust - AQR pass 131 131 — Consumer secured by 1st deeds of trust - AQR substandard 478 478 49 Total $35,434 $37,478 $372 (In Thousands) Recorded Investment Unpaid Principal Balance Related Allowance December 31, 2017 With no related allowance recorded Commercial - AQR special mention $2,153 $2,153 $— Commercial - AQR substandard 16,671 17,742 — Real estate term owner occupied - AQR substandard 2,862 2,862 — Real estate term non-owner occupied - AQR pass 303 303 — Real estate term non-owner occupied - AQR special mention 89 89 — Real estate term non-owner occupied - AQR substandard 482 482 — Real estate term other - AQR pass 559 559 — Consumer secured by 1st deeds of trust - AQR pass 136 136 — Consumer secured by 1st deeds of trust - AQR substandard 724 809 — Subtotal $23,979 $25,135 $— With an allowance recorded Commercial - AQR substandard $7,988 $7,988 $966 Subtotal $7,988 $7,988 $966 Total Commercial - AQR special mention $2,153 $2,153 $— Commercial - AQR substandard 24,659 25,730 966 Real estate term owner occupied - AQR substandard 2,862 2,862 — Real estate term non-owner occupied - AQR pass 303 303 — Real estate term non-owner occupied - AQR special mention 89 89 — Real estate term non-owner occupied - AQR substandard 482 482 — Real estate term other - AQR pass 559 559 — Consumer secured by 1st deeds of trust - AQR pass 136 136 — Consumer secured by 1st deeds of trust - AQR substandard 724 809 — Total $31,967 $33,123 $966 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 and nine-month periods ended September 30, 2018 and 2017 : Three Months Ended September 30, 2018 2017 (In Thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded Commercial - AQR special mention $2,113 $31 $97 $— Commercial - AQR substandard 26,518 43 18,125 72 Real estate term owner occupied- AQR special mention 617 — — — Real estate term owner occupied- AQR substandard 2,908 52 7,345 114 Real estate term non-owner occupied- AQR pass 206 7 346 6 Real estate term non-owner occupied- AQR substandard 287 8 580 9 Real estate term other - AQR pass 310 11 585 10 Real estate term other - AQR substandard 353 — 641 11 Consumer secured by 1st deeds of trust - AQR pass 132 2 — — Consumer secured by 1st deeds of trust - AQR special mention — — 139 3 Consumer secured by 1st deeds of trust - AQR substandard 154 2 771 5 Subtotal $33,598 $156 $28,629 $230 With an allowance recorded Commercial - AQR special mention $— $— $2,083 $3 Commercial - AQR substandard 1,081 10 10,056 4 Consumer secured by 1st deeds of trust - AQR substandard 136 — — — Subtotal $1,217 $10 $12,139 $7 Total Commercial - AQR special mention $2,113 $31 $2,180 $3 Commercial - AQR substandard 27,599 53 28,181 76 Real estate term owner-occupied - AQR special mention 617 — — — Real estate term owner-occupied - AQR substandard 2,908 52 7,345 114 Real estate term non-owner occupied - AQR pass 206 7 346 6 Real estate term non-owner occupied - AQR substandard 287 8 580 9 Real estate term other - AQR pass 310 11 585 10 Real estate term other - AQR substandard 353 — 641 11 Consumer secured by 1st deeds of trust - AQR pass 132 2 — — Consumer secured by 1st deeds of trust - AQR special mention — — 139 3 Consumer secured by 1st deeds of trust - AQR substandard 290 2 771 5 Total Impaired Loans $34,815 $166 $40,768 $237 Nine Months Ended September 30, 2018 2017 (In Thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded Commercial - AQR special mention $2,192 $96 $49 $1 Commercial - AQR substandard 25,271 300 20,363 405 Real estate term owner occupied- AQR pass — — 82 5 Real estate term owner occupied- AQR special mention 208 — — — Real estate term owner occupied- AQR substandard 4,019 129 6,257 260 Real estate term non-owner occupied- AQR pass 294 18 367 38 Real estate term non-owner occupied- AQR special mention 29 2 — — Real estate term non-owner occupied- AQR substandard 413 22 654 38 Real estate term other - AQR pass 462 28 604 32 Real estate term other - AQR substandard 119 — 652 34 Consumer secured by 1st deeds of trust - AQR pass 136 10 — — Consumer secured by 1st deeds of trust - AQR special mention — — 141 10 Consumer secured by 1st deeds of trust - AQR substandard 168 8 506 13 Consumer other - AQR substandard — — 17 1 Subtotal $33,311 $613 $29,692 $837 With an allowance recorded Commercial - AQR special mention $— $— $702 $3 Commercial - AQR substandard 2,866 17 7,979 4 Commercial - AQR doubtful 18 — — — Consumer secured by 1st deeds of trust - AQR substandard 126 — — — Subtotal $3,010 $17 $8,681 $7 Total Commercial - AQR special mention $2,192 $96 $751 $4 Commercial - AQR substandard 28,137 317 28,342 409 Commercial - AQR doubtful 18 — — — Real estate term owner-occupied - AQR pass — — 82 5 Real estate term owner-occupied - AQR special mention 208 — — — Real estate term owner-occupied - AQR substandard 4,019 129 6,257 260 Real estate term non-owner occupied - AQR pass 294 18 367 38 Real estate term non-owner occupied - AQR special mention 29 2 — — Real estate term non-owner occupied - AQR substandard 413 22 654 38 Real estate term other - AQR pass 462 28 604 32 Real estate term other - AQR substandard 119 — 652 34 Consumer secured by 1st deeds of trust - AQR pass 136 10 — — Consumer secured by 1st deeds of trust - AQR special mention — — 141 10 Consumer secured by 1st deeds of trust - AQR substandard 294 8 506 13 Consumer other - AQR substandard — — 17 1 Total Impaired Loans $36,321 $630 $38,373 $844 Purchased Credit Impaired Loans: The Company acquired 18 purchased credit impaired loans in connection with its acquisition of Alaska Pacific Bancshares, Inc. on April 1, 2014 subject to the requirements of FASB ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality. This group of loans consists primarily of commercial and commercial real estate loans, and unlike a pool of consumer mortgages, it is not practicable for the Company to analyze the accretable yield of these loans. As such, the Company has elected the cost recovery method of income recognition for these loans, and thus no accretable yield has been identified for these loans. At the acquisition date, April 1, 2014, the fair value of this group of loans was $3.9 million . The carrying value of these loans as of September 30, 2018 was $792,000 . Troubled Debt Restructurings: Loans classified as troubled debt restructurings (“TDR”) totaled $17.9 million and $23.8 million at September 30, 2018 and December 31, 2017 , 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 nine months ended September 30, 2018 and restructured loans that occurred prior to 2018 that are still included in portfolio loans: Accrual Status Nonaccrual Status Total Modifications (In Thousands) New Troubled Debt Restructurings Commercial - AQR substandard $— $1,738 $1,738 Real estate term owner occupied- AQR substandard — 1,694 1,694 Subtotal $— $3,432 $3,432 Existing Troubled Debt Restructurings $3,252 $11,178 $14,430 Total $3,252 $14,610 $17,862 The following tables present newly restructured loans that occurred during the nine months ended September 30, 2018 and 2017, by concession (terms modified): September 30, 2018 Number of Contracts Rate Modification Term Modification Payment Modification Combination Modification Total Modifications (In Thousands) 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 September 30, 2017 Number of Contracts Rate Modification Term Modification Payment Modification Combination Modification Total Modifications (In Thousands) Pre-Modification Outstanding Recorded Investment: Commercial - AQR special mention 1 $— $2,078 $— $— $2,078 Commercial - AQR substandard 2 — 10,665 210 — 10,875 Total 3 $— $12,743 $210 $— $12,953 Post-Modification Outstanding Recorded Investment: Commercial - AQR special mention 1 $— $2,078 $— $— $2,078 Commercial - AQR substandard 2 — 9,099 205 — 9,304 Total 3 $— $11,177 $205 $— $11,382 The Company had no commitments to extend additional credit to borrowers whose terms have been modified in TDRs. There were $965,000 of charge-offs in the nine months ended September 30, 2018 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 were two TDRs with specific impairment at September 30, 2018 and December 31, 2017. The Company had no TDRs that subsequently defaulted within the first twelve months of restructure, during the year ending December 31, 2017 . The following table presents TDRs that occurred during the twelve-month period ending September 30, 2018 that subsequently defaulted during the nine months ended September 30, 2018: September 30, 2018 Number of Contracts Recorded Investment (In Thousands) Troubled Debt Restructurings that Subsequently Defaulted: Commercial - AQR substandard 2 $559 Real estate term owner occupied - AQR substandard 1 1,331 Total 3 $1,890 |