Loans | Note 4 – Loans The composition of the loan portfolio at the dates indicated, excluding loans held for sale, was as follows (in thousands): At September 30, 2016 At December 31, 2015 Real estate loans: One- to four- family $ 151,992 $ 141,125 Home equity 30,297 31,573 Commercial and multifamily 170,258 175,312 Construction and land 58,902 57,043 Total real estate loans $ 411,449 $ 405,053 Consumer loans: Manufactured homes 15,525 13,798 Other consumer 25,570 23,030 Total consumer loans 41,095 36,828 Commercial business loans 26,439 19,295 Total loans 478,983 461,176 Deferred fees (1,917 ) (1,707 ) Total loans, gross 477,066 459,469 Allowance for loan losses (4,859 ) (4,636 ) Total loans, net $ 472,207 $ 454,833 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2016 (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Other consumer Commercial business Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 629 $ 97 $ 389 $ 23 $ 53 $ 23 $ 30 $ - $ 1,244 Collectively evaluated for impairment $ 1,029 $ 327 $ 971 $ 350 $ 124 $ 175 $ 151 $ 488 $ 3,615 Ending balance $ 1,658 $ 424 $ 1,360 $ 373 $ 177 $ 198 $ 181 $ 488 $ 4,859 Loans receivable: Individually evaluated for impairment $ 5,278 $ 885 $ 3,869 $ 85 $ 372 $ 23 $ 633 $ - $ 11,145 Collectively evaluated for impairment $ 146,714 $ 29,412 $ 166,389 $ 58,817 $ 15,153 $ 25,547 $ 25,806 $ - $ 467,838 Ending balance $ 151,992 $ 30,297 $ 170,258 $ 58,902 $ 15,525 $ 25,570 $ 26,439 $ - $ 478,983 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2015 (in thousands): One-to- four family Home equity Commercial and multifamily Construction and land Manufactured homes Other consumer Commercial business Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 647 $ 110 $ 36 $ 18 $ 63 $ - $ 8 $ - $ 882 Collectively evaluated for impairment 1,192 497 885 364 238 188 149 241 3,754 Ending balance $ 1,839 $ 607 $ 921 $ 382 $ 301 $ 188 $ 157 $ 241 $ 4,636 Loans receivable: Individually evaluated for impairment $ 5,779 $ 904 $ 1,966 $ 91 $ 361 $ 5 $ 114 $ - $ 9,220 Collectively evaluated for impairment 135,346 30,669 173,346 56,952 13,437 23,025 19,181 - 451,956 Ending balance $ 141,125 $ 31,573 $ 175,312 $ 57,043 $ 13,798 $ 23,030 $ 19,295 $ - $ 461,176 The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2016 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to four- family $ 1,713 $ - $ - $ (55 ) $ 1,658 Home equity 501 (14 ) 10 (73 ) 424 Commercial and multifamily 1,377 - - (17 ) 1,360 Construction and land 388 - 18 (33 ) 373 Manufactured homes 189 - 2 (14 ) 177 Other consumer 221 (10 ) 15 (28 ) 198 Commercial business 171 - - 10 181 Unallocated 278 - - 210 488 Total $ 4,838 $ (24 ) $ 45 $ 0 $ 4,859 The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2016 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to four- family $ 1,839 $ (72 ) $ - $ (109 ) $ 1,658 Home equity 607 (14 ) - (169 ) 424 Commercial and multifamily 921 - - 439 1,360 Construction and land 382 - 18 (27 ) 373 Manufactured homes 301 - 75 (199 ) 177 Other consumer 188 (31 ) 7 34 198 Commercial business 157 (29 ) 19 34 181 Unallocated 241 - - 247 488 Total $ 4,636 $ (146 ) $ 119 $ 250 $ 4,859 The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2015 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to four- family $ 1,594 $ - $ - $ 174 $ 1,768 Home equity 509 - 25 (15 ) 519 Commercial and multifamily 1,507 - - (166 ) 1,341 Construction and land 345 - 1 (229 ) 117 Manufactured homes 193 - - (1 ) 192 Other consumer 183 (18 ) 2 2 169 Commercial business 145 - - (11 ) 134 Unallocated 96 - - 346 442 Total $ 4,572 $ (18 ) $ 28 $ 100 $ 4,682 The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2015 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to four- family $ 1,442 $ (21 ) $ - $ 347 $ 1,768 Home equity 601 (19 ) 35 (98 ) 519 Commercial and multifamily 1,244 - - 97 1,341 Construction and land 399 (40 ) 1 (242 ) 117 Manufactured homes 193 (32 ) 5 24 192 Other consumer 167 (45 ) 11 37 169 Commercial business 108 - - 26 134 Unallocated 233 - - 209 442 Total $ 4,387 $ (157 ) $ 52 $ 400 $ 4,682 Credit Quality Indicators. When we classify problem loans as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired). General allowances represent loss reserves which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem loans. When the Company classifies problem loans as a loss, we charge off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss but possess identified weaknesses are classified as either watch or special mention assets. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation (“FDIC”), the Bank’s federal regulatory, and the Washington Department of Financial Institutions, the Bank’s state banking regulator, which can order the establishment of additional loss allowances. Pass rated loans are loans that are not otherwise classified or criticized. The following table represents the internally assigned grades as of September 30, 2016 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Other consumer Commercial business Total Grade: Pass $ 148,008 $ 29,106 $ 164,970 $ 58,057 $ 15,277 $ 25,496 $ 26,037 $ 466,951 Watch 1,167 537 1,943 845 77 51 22 4,642 Special Mention 1,408 - - - 31 - - 1,439 Substandard 1,409 654 3,345 - 140 23 380 5,951 Doubtful - - - - - - - - Loss - - - - - - - - Total $ 151,992 $ 30,297 $ 170,258 $ 58,902 $ 15,525 $ 25,570 $ 26,439 $ 478,983 The following table represents the internally assigned grades as of December 31, 2015 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Other consumer Commercial business Total Grade: Pass $ 136,879 $ 30,310 $ 169,072 $ 55,984 $ 13,621 $ 22,967 $ 18,449 $ 447,282 Watch 1,015 609 4,810 1,059 96 58 846 8,493 Special Mention 1,409 - 1,430 - 33 - - 2,872 Substandard 1,822 654 - - 48 5 - 2,529 Doubtful - - - - - - - - Loss - - - - - - - - Total $ 141,125 $ 31,573 $ 175,312 $ 57,043 $ 13,798 $ 23,030 $ 19,295 $ 461,176 Nonaccrual and Past Due Loans The following table presents the recorded investment in nonaccrual loans as of September 30, 2016 and December 31, 2015, by type of loan (in thousands): September 30, 2016 December 31, 2015 One- to four- family $ 1,189 $ 1,157 Home equity 427 344 Commercial and multifamily 2,337 - Construction and land - - Manufactured homes 112 27 Other consumer 154 - Total $ 4,219 $ 1,528 The following table represents the aging of the recorded investment in past due loans as of September 30, 2016 by type of loan (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Still Accruing Total Past Due Current Total Loans One-to four- family $ - $ 459 $ 977 $ - $ 1,436 $ 150,556 $ 151,992 Home equity 348 153 231 - 732 29,565 30,297 Commercial and multifamily - - 228 - 228 170,030 170,258 Construction and land - - - - - 58,902 58,902 Manufactured homes 177 - 112 - 289 15,236 15,525 Other consumer 1 28 - - 29 25,541 25,570 Commercial business 147 - - - 147 26,292 26,439 Total $ 673 $ 640 $ 1,548 $ - $ 2,861 $ 476,122 $ 478,983 The following table represents the aging of the recorded investment in past due loans as of December 31, 2015 by type of loan (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Still Accruing Total Past Due Current Total Loans One-to four- family $ 2,453 $ 265 $ 881 $ 117 $ 3,716 $ 137,409 $ 141,125 Home equity 352 60 296 - 708 30,865 31,573 Commercial and multifamily 203 - - - 203 175,109 175,312 Construction and land 65 - - - 65 56,978 57,043 Manufactured homes 103 27 - - 130 13,668 13,798 Other consumer 17 26 - - 43 22,987 23,030 Commercial business 154 8 - - 162 19,133 19,295 Total $ 3,347 $ 386 $ 1,177 $ 117 $ 5,027 $ 456,149 $ 461,176 Nonperforming Loans. The following table represents the credit risk profile of our loan portfolio based on payment activity as of September 30, 2016 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Other consumer Commercial business Total Performing $ 150,437 $ 29,717 $ 167,921 $ 58,902 $ 15,377 $ 25,570 $ 26,190 $ 474,114 Nonperforming 1,555 580 2,337 - 148 - 249 4,869 Total $ 151,992 $ 30,297 $ 170,258 $ 58,902 $ 15,525 $ 25,570 $ 26,439 $ 478,983 The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2015 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Other consumer Commercial business Total Performing $ 139,484 $ 31,146 $ 175,312 $ 57,043 $ 13,736 $ 23,030 $ 19,295 $ 459,046 Nonperforming 1,641 427 - - 62 - - 2,130 Total $ 141,125 $ 31,573 $ 175,312 $ 57,043 $ 13,798 $ 23,030 $ 19,295 $ 461,176 Impaired Loans. Impaired loans at September 30, 2016 and December 31, 2015 by type of loan were as follows (in thousands): September 30, 2016 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Related Allowance One- to four- family $ 5,617 $ 2,405 $ 2,873 $ 629 Home equity 985 445 440 97 Commercial and multifamily 3,871 1,237 2,632 389 Construction and land 85 - 85 23 Manufactured homes 387 112 260 53 Other consumer 23 - 23 23 Commercial business 638 146 487 30 Total $ 11,606 $ 4,345 $ 6,800 $ 1,244 December 31, 2015 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Related Allowance One- to four- family $ 6,011 $ 499 $ 5,280 $ 647 Home equity 994 162 742 110 Commercial and multifamily 1,966 1,430 536 36 Construction and land 91 - 91 18 Manufactured homes 366 - 361 63 Other consumer 5 - 5 - Commercial business 114 - 114 8 Total $ 9,547 $ 2,091 $ 7,129 $ 882 Income on impaired loans for the three and nine months ended September 30, 2016 and September 30, 2015 by type of loan were as follows (in thousands): Three Months Ended Three Months Ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One- to four- family $ 5,445 $ 58 $ 5,760 $ 70 Home equity 968 4 1,006 10 Commercial and multifamily 4,365 19 2,388 30 Construction and land 86 1 135 2 Manufactured homes 383 6 366 7 Other consumer 24 - 93 2 Commercial business 640 9 138 2 Total $ 11,911 $ 97 $ 9,886 $ 123 Nine months Ended Nine months Ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One- to four- family $ 5,533 $ 197 $ 4,957 $ 198 Home equity 944 31 1,115 28 Commercial and multifamily 3,902 152 2,616 78 Construction and land 88 3 157 4 Manufactured homes 377 23 385 20 Other consumer 20 2 63 2 Commercial business 474 27 151 5 Total $ 11,338 $ 435 $ 9,444 $ 335 Forgone interest on nonaccrual loans was $95,000 and Troubled debt restructurings. Rate Modification Term Modification Payment Modification Combination Modification There were no new TDRs that occurred during the nine months ended September 30, 2016 and 2015. There were no loans modified as TDRs within the previous 12 months. For the three and nine months ended September 30, 2016 and 2015, no TDR loans defaulted in the reporting period for which the default occurred within 12 months of the restructure date. There were no post-modification changes for the recorded investment in TDR loans during the three and nine months ended September 30, 2016 and 2015, respectively. The allowance for loan losses allocated to TDRs at September 30, 2016 and December 31, 2015 was $630,000 and $599,000, respectively. |