Loans | Note 4 – Loans The composition of the loan portfolio at the dates indicated, excluding loans held-for-sale, was as follows (in thousands): June 30, 2017 December 31, 2016 Real estate loans: One- to four- family $ 147,848 $ 152,386 Home equity 27,996 27,771 Commercial and multifamily 195,486 181,004 Construction and land 52,775 70,915 Total real estate loans $ 424,105 $ 432,076 Consumer loans: Manufactured homes 16,300 15,494 Floating homes 25,225 23,996 Other consumer 4,639 3,932 Total consumer loans 46,164 43,422 Commercial business loans 25,314 26,331 Total loans 495,583 501,829 Deferred fees (1,687 ) (1,828 ) Total loans, gross 493,896 500,001 Allowance for loan losses (4,835 ) (4,822 ) Total loans, net $ 489,061 $ 495,179 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 June 30, 2017 (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 481 $ 256 $ - $ 35 $ 72 $ - $ 59 $ 216 $ - $ 1,119 Collectively evaluated for impairment 821 175 1,153 317 106 146 39 148 811 3,716 Ending balance $ 1,302 $ 431 $ 1,153 $ 352 $ 178 $ 146 $ 98 $ 364 $ 811 $ 4,835 Loans receivable: Individually evaluated for impairment $ 6,452 $ 983 $ 1,735 $ 128 $ 298 $ - $ 59 $ 335 $ - $ 9,990 Collectively evaluated for impairment 141,396 27,013 193,751 52,647 16,002 25,225 4,580 24,979 - 485,593 Ending balance $ 147,848 $ 27,996 $ 195,486 $ 52,775 $ 16,300 $ 25,225 $ 4,639 $ 25,314 $ - $ 495,583 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, 2016 (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 536 $ 121 $ 24 $ 35 $ 59 $ - $ 65 $ 23 $ - $ 863 Collectively evaluated for impairment 1,006 257 1,120 424 109 132 47 152 712 3,959 Ending balance $ 1,542 $ 378 $ 1,144 $ 459 $ 168 $ 132 $ 112 $ 175 $ 712 $ 4,822 Loans receivable: Individually evaluated for impairment $ 4,749 $ 832 $ 1,582 $ 83 $ 312 $ - $ 62 $ 616 $ - $ 8,236 Collectively evaluated for impairment 147,637 26,939 179,422 70,832 15,182 23,996 3,870 25,715 - 493,593 Ending balance $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ - $ 501,829 The following table summarizes the activity in the allowance for loan losses for the three months ended June 30, 2017 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,535 $ - $ - $ (233 ) $ 1,302 Home equity 248 - 2 181 431 Commercial and multifamily 1,113 - - 40 1,153 Construction and land 413 - - (61 ) 352 Manufactured homes 148 (6 ) 1 35 178 Floating homes 137 - 2 7 146 Other consumer 98 (2 ) - 2 98 Commercial business 154 - - 210 364 Unallocated 992 - - (181 ) 811 Total $ 4,838 $ (8 ) $ 5 $ - $ 4,835 The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 2017 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,542 $ - $ - $ (240 ) $ 1,302 Home equity 378 - 28 25 431 Commercial and multifamily 1,144 (24 ) 1 32 1,153 Construction and land 459 - - (107 ) 352 Manufactured homes 168 (5 ) 3 12 178 Floating homes 132 - - 14 146 Other consumer 112 (7 ) 17 (24 ) 98 Commercial business 175 - - 189 364 Unallocated 712 - - 99 811 Total $ 4,822 $ (36 ) $ 49 $ - $ 4,835 The following table summarizes the activity in the allowance for loan losses for the three months ended June 30, 2016 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,733 $ (7 ) $ - $ (13 ) $ 1,713 Home equity 597 - 63 (159 ) 501 Commercial and multifamily 1,267 - - 110 1,377 Construction and land 463 - - (75 ) 388 Manufactured homes 202 - 3 (16 ) 189 Floating homes 132 - - - 132 Other consumer 101 (3 ) 2 (11 ) 89 Commercial business 164 (29 ) - 36 171 Unallocated 50 - - 228 278 Total $ 4,709 $ (39 ) $ 68 $ 100 $ 4,838 The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 2016 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,839 $ (72 ) $ - $ (54 ) $ 1,713 Home equity 607 - 65 (171 ) 501 Commercial and multifamily 921 - - 456 1,377 Construction and land 382 - - 6 388 Manufactured homes 301 - 5 (117 ) 189 Floating homes 111 - - 21 132 Other consumer 77 (21 ) 4 29 89 Commercial business 157 (29 ) - 43 171 Unallocated 241 - - 37 278 Total $ 4,636 $ (122 ) $ 74 $ 250 $ 4,838 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 regulator, and the Washington Department of Financial Institutions (“WDFI”), 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 June 30, 2017 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Grade: Pass $ 142,686 $ 26,794 $ 184,343 $ 49,705 $ 16,122 $ 25,225 $ 4,535 $ 24,730 $ 474,140 Watch 544 362 9,408 3,021 52 - 45 339 13,771 Special Mention 138 - 362 - 23 - - 106 629 Substandard 4,480 840 1,373 49 103 - 59 139 7,043 Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 147,848 $ 27,996 $ 195,486 $ 52,775 $ 16,300 $ 25,225 $ 4,639 $ 25,314 $ 495,583 The following table represents the internally assigned grades as of December 31, 2016 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Grade: Pass $ 148,617 $ 26,547 $ 171,678 $ 67,539 $ 15,288 $ 23,996 $ 3,821 $ 25,625 $ 483,111 Watch 998 536 8,105 3,376 78 - 49 326 13,468 Special Mention 139 - - - 30 - - - 169 Substandard 2,632 688 1,221 - 98 - 62 380 5,081 Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829 Nonaccrual and Past Due Loans The following table presents the recorded investment in nonaccrual loans as of June 30, 2017 and December 31, 2016, by type of loan (in thousands): June 30, 2017 December 31, 2016 One- to four- family $ 720 $ 2,169 Home equity 674 536 Commercial and multifamily 211 218 Manufactured homes 75 72 Commercial business 139 149 Total $ 1,819 $ 3,144 The following table represents the aging of the recorded investment in past due loans as of June 30, 2017 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 $ - $ 2,197 $ 540 $ - $ 2,737 $ 145,111 $ 147,848 Home equity 152 118 637 - 907 27,089 27,996 Commercial and multifamily - - - - - 195,486 195,486 Construction and land - - 49 - 49 52,726 52,775 Manufactured homes 41 63 80 - 184 16,116 16,300 Floating homes - - - - - 25,225 25,225 Other consumer 1 1 - - 2 4,637 4,639 Commercial business 4 - - - 4 25,310 25,314 Total $ 198 $ 2,379 $ 1,306 $ - $ 3,883 $ 491,700 $ 495,583 The following table represents the aging of the recorded investment in past due loans as of December 31, 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 $ 2,476 $ 161 $ 1,787 $ - $ 4,424 $ 147,962 $ 152,386 Home equity 460 - 494 - 954 26,817 27,771 Commercial and multifamily - - - - - 181,004 181,004 Construction and land 440 - - - 440 70,475 70,915 Manufactured homes 321 28 62 - 411 15,083 15,494 Floating homes - - - - - 23,996 23,996 Other consumer 26 1 - - 27 3,905 3,932 Commercial business 149 - - - 149 26,182 26,331 Total $ 3,872 $ 190 $ 2,343 $ - $ 6,405 $ 495,424 $ 501,829 Nonperforming Loans. The following table represents the credit risk profile of our loan portfolio based on payment activity as of June 30, 2017 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Performing $ 145,809 $ 27,305 $ 195,275 $ 52,775 $ 16,202 $ 25,225 $ 4,639 $ 25,085 $ 492,315 Nonperforming 2,039 691 211 - 98 - - 229 3,268 Total $ 147,848 $ 27,996 $ 195,486 $ 52,775 $ 16,300 $ 25,225 $ 4,639 $ 25,314 $ 495,583 The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2016 by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Performing $ 150,170 $ 27,218 $ 180,786 $ 70,915 $ 15,374 $ 23,996 $ 3,932 $ 26,089 $ 498,480 Nonperforming 2,216 553 218 - 120 - - 242 3,349 Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829 Impaired Loans. Impaired loans at June 30, 2017 and December 31, 2016 by type of loan were as follows (in thousands): June 30, 2017 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Total Recorded Investment Related Allowance One- to four- family $ 6,739 $ 3,284 $ 3,168 $ 6,452 $ 481 Home equity 1,096 515 468 983 256 Commercial and multifamily 1,746 1,735 - 1,735 - Construction and land 127 59 69 128 35 Manufactured homes 313 116 182 298 72 Other consumer 58 - 59 59 59 Commercial business 286 - 335 335 216 Total $ 10,365 $ 5,709 $ 4,281 $ 9,990 $ 1,119 December 31, 2016 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Total Recorded Investment Related Allowance One- to four- family $ 5,010 $ 2,454 $ 2,295 $ 4,749 $ 536 Home equity 913 446 386 832 121 Commercial and multifamily 1,582 1,221 361 1,582 24 Construction and land 83 - 83 83 35 Manufactured homes 326 91 221 312 59 Other consumer 62 - 62 62 65 Commercial business 616 143 473 616 23 Total $ 8,592 $ 4,355 $ 3,881 $ 8,236 $ 863 Income on impaired loans for the three and six months ended June 30, 2017 and December 31, 2016 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 $ 6,464 $ 68 $ 5,539 $ 72 Home equity 1,050 10 993 15 Commercial and multifamily 1,927 21 4,887 66 Construction and land 105 2 88 1 Manufactured homes 287 5 387 9 Other consumer 61 1 26 1 Commercial business 367 6 573 11 Total $ 10,261 $ 113 $ 12,493 $ 175 Six Months Ended Six Months Ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One- to four- family $ 5,635 $ 152 $ 5,619 $ 140 Home equity 920 20 963 27 Commercial and multifamily 1,662 48 3,913 133 Construction and land 106 3 89 2 Manufactured homes 307 10 378 16 Other consumer 61 2 19 2 Commercial business 477 11 420 18 Total $ 9,168 $ 246 $ 11,401 $ 338 Forgone interest on nonaccrual loans was $10,000 and Troubled debt restructurings. Rate Modification Term Modification Payment Modification Combination Modification There was one $1.3 million one- to four- family residential loan modified as a TDR during the six months ended June 30, 2017. The following TDR loans paid off during the first six months of 2017: a $125,000 one- to four- family residential loan, a $14,000 manufactured home loan, a zero balance home equity loan and a $359,000 commercial/multifamily loan. There were no new TDRs during the six months ended June 30, 2016. There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the six months ended June 30, 2017 and 2016. There were no TDRs for which there was a payment default within the first 12 months of modification during the six months ended June 30, 2017 or 2016. The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in TDRs. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses. |