Loans | Note 4 – Loans The composition of the loans-held-for portfolio at the dates indicated, excluding loans held-for-sale, was as follows (in thousands): September 30, 2018 December 31, 2017 Real estate loans: One-to-four family $ 170,509 $ 157,417 Home equity 28,525 28,379 Commercial and multifamily 254,050 211,269 Construction and land 60,877 61,482 Total real estate loans $ 513,961 $ 458,547 Consumer loans: Manufactured homes 19,448 17,111 Floating homes 41,377 29,120 Other consumer 5,026 4,902 Total consumer loans 65,851 51,133 Commercial business loans 39,681 40,829 Total loans held-for-portfolio 619,493 550,509 Deferred fees (2,263 ) (1,914 ) Total loans, gross held-for-portfolio 617,230 548,595 Allowance for loan losses (5,748 ) (5,241 ) Total loans held-for-portfolio, net $ 611,482 $ 543,354 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, 2018 (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 $ 363 $ 30 $ — $ 9 $ 295 $ — $ 69 $ 179 $ — $ 945 Collectively evaluated for impairment 1,076 180 1,631 379 124 269 38 240 866 4,803 Ending balance $ 1,439 $ 210 $ 1,631 $ 388 $ 419 $ 269 $ 107 $ 419 $ 866 $ 5,748 Loans hed-for-portfolio: Individually evaluated for impairment $ 4,932 $ 823 $ 3,274 $ 2,484 $ 425 $ — $ 163 $ 2,883 $ — $ 14,984 Collectively evaluated for impairment 165,577 27,702 250,776 58,393 19,023 41,377 4,863 36,798 — 604,509 Ending balance $ 170,509 $ 28,525 $ 254,050 $ 60,877 $ 19,448 $ 41,377 $ 5,026 $ 39,681 $ — $ 619,493 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, 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 $ 555 $ 120 $ — $ 13 $ 258 $ — $ 43 $ 135 $ — $ 1,124 Collectively evaluated for impairment 881 173 1,250 365 97 169 37 237 908 4,117 Ending balance $ 1,436 $ 293 $ 1,250 $ 378 $ 355 $ 169 $ 80 $ 372 $ 908 $ 5,241 Loans held-for-portfolio: Individually evaluated for impairment $ 6,256 $ 1,028 $ 1,699 $ 141 $ 385 $ — $ 194 $ 1,000 $ — $ 10,703 Collectively evaluated for impairment 151,161 27,351 209,570 61,341 16,726 29,120 4,708 39,829 — 539,806 Ending balance $ 157,417 $ 28,379 $ 211,269 $ 61,482 $ 17,111 $ 29,120 $ 4,902 $ 40,829 $ — $ 550,509 The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2018 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to-four family $ 1,579 $ — $ — $ (140 ) $ 1,439 Home equity 211 — 3 (4 ) 210 Commercial and multifamily 1,401 — — 230 1,631 Construction and land 385 — — 3 388 Manufactured homes 326 — — 93 419 Floating homes 195 — — 74 269 Other consumer 116 (11 ) 3 (1 ) 107 Commercial business 553 — — (134 ) 419 Unallocated 737 — — 129 866 Total $ 5,503 $ (11 ) $ 6 $ 250 $ 5,748 The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2018 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to-four family $ 1,436 $ — $ 1 $ 2 $ 1,439 Home equity 293 (7 ) 41 (117 ) 210 Commercial and multifamily 1,250 — — 381 1,631 Construction and land 378 — — 10 388 Manufactured homes 355 (12 ) — 76 419 Floating homes 169 — — 100 269 Other consumer 80 (24 ) 8 43 107 Commercial business 372 — — 47 419 Unallocated 908 — — (42 ) 866 Total $ 5,241 $ (43 ) $ 50 $ 500 $ 5,748 The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2017 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to-four family $ 1,302 $ — $ — $ (51 ) $ 1,251 Home equity 431 (89 ) 1 8 351 Commercial and multifamily 1,153 — — 32 1,185 Construction and land 352 — — 7 359 Manufactured homes 178 (7 ) — 9 180 Floating homes 146 — — 8 154 Other consumer 98 (1 ) 2 (1 ) 98 Commercial business 364 — — 143 507 Unallocated 811 — — 95 906 Total $ 4,835 $ (97 ) $ 3 $ 250 $ 4,991 The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2017 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One-to-four family $ 1,542 $ — $ — $ (291 ) $ 1,251 Home equity 378 (89 ) 30 32 351 Commercial and multifamily 1,144 (24 ) 1 64 1,185 Construction and land 459 — — (100 ) 359 Manufactured homes 168 (13 ) 3 22 180 Floating homes 132 — — 22 154 Other consumer 112 (8 ) 19 (25 ) 98 Commercial business 175 — — 332 507 Unallocated 712 — — 194 906 Total $ 4,822 $ (134 ) $ 53 $ 250 $ 4,991 Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful . Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without establishment of a specific loss reserve is not warranted. 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, both 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, 2018, 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 $ 164,281 $ 27,995 $ 248,917 $ 58,438 $ 19,158 $ 41,377 $ 4,972 $ 37,095 $ 602,233 Watch 4,484 — 2,028 — 55 — — 839 7,406 Special Mention — — 1,458 2,362 — — — 476 4,296 Substandard 1,744 530 1,647 77 235 — 54 1,271 5,558 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 170,509 $ 28,525 $ 254,050 $ 60,877 $ 19,448 $ 41,377 $ 5,026 $ 39,681 $ 619,493 The Bank had $3.3 million in performing loans identified as TDRs at September 30, 2018, that were not classified as special mention or substandard. The following table represents the internally assigned grades as of December 31, 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 $ 153,793 $ 27,493 $ 199,887 $ 61,390 $ 16,877 $ 29,120 $ 4,708 $ 39,089 $ 532,357 Watch 244 — 9,683 — — — — 827 10,754 Special Mention 137 — 357 — — — — 784 1,278 Substandard 3,243 886 1,342 92 234 — 194 129 6,120 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 157,417 $ 28,379 $ 211,269 $ 61,482 $ 17,111 $ 29,120 $ 4,902 $ 40,829 $ 550,509 Nonaccrual and Past Due Loans The following table presents the recorded investment in nonaccrual loans as of September 30, 2018, and December 31, 2017, by type of loan (in thousands): September 30, 2018 December 31, 2017 One-to-four family $ 824 $ 791 Home equity 384 722 Commercial and multifamily 539 201 Construction and land 76 92 Manufactured homes 223 206 Floating homes — — Other consumer 4 8 Commercial business 334 129 Total $ 2,384 $ 2,149 The following table represents the aging of the recorded investment in past due loans as of September 30, 2018, by type of loan (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Past Due Total Past Due Current Total Loans One-to-four family $ — $ 222 $ 419 $ 641 $ 169,868 $ 170,509 Home equity 49 66 305 420 28,105 28,525 Commercial and multifamily 671 — 353 1,024 253,026 254,050 Construction and land — — — — 60,877 60,877 Manufactured homes — 6 205 211 19,237 19,448 Floating homes — — — — 41,377 41,377 Other consumer 8 1 — 9 5,017 5,026 Commercial business 323 67 — 390 39,291 39,681 Total $ 1,051 $ 362 $ 1,282 $ 2,695 $ 616,798 $ 619,493 The following table represents the aging of the recorded investment in past due loans as of December 31, 2017, by type of loan (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Past Due Total Past Due Current Total Loans One-to-four family $ 2,092 $ 1,819 $ 727 $ 4,638 $ 152,779 $ 157,417 Home equity 521 5 633 1,159 27,220 28,379 Commercial and multifamily 313 — — 313 210,956 211,269 Construction and land 51 — 92 143 61,339 61,482 Manufactured homes 185 50 197 432 16,679 17,111 Floating homes — — — — 29,120 29,120 Other consumer 15 — — 15 4,887 4,902 Commercial business 400 — — 400 40,429 40,829 Total $ 3,577 $ 1,874 $ 1,649 $ 7,100 $ 543,409 $ 550,509 Nonperforming Loans. The following table represents the credit risk profile of our loan portfolio based on payment activity as of September 30, 2018, 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 $ 169,640 $ 28,141 $ 253,511 $ 60,801 $ 19,225 $ 41,377 $ 5,022 $ 39,264 $ 616,981 Nonperforming 869 384 539 76 223 — 4 417 2,512 Total $ 170,509 $ 28,525 $ 254,050 $ 60,877 $ 19,448 $ 41,377 $ 5,026 $ 39,681 $ 619,493 The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 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 $ 156,580 $ 27,657 $ 211,068 $ 61,390 $ 16,905 $ 29,120 $ 4,894 $ 40,612 $ 548,226 Nonperforming 837 722 201 92 206 — 8 217 2,283 Total $ 157,417 $ 28,379 $ 211,269 $ 61,482 $ 17,111 $ 29,120 $ 4,902 $ 40,829 $ 550,509 Impaired Loans. Impaired loans at September 30, 2018 and December 31, 2017, by type of loan were as follows (in thousands): September 30, 2018 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Total Recorded Investment Related Allowance One-to-four family $ 5,066 $ 1,934 $ 2,998 $ 4,932 $ 363 Home equity 903 662 161 823 30 Commercial and multifamily 3,274 3,274 — 3,274 — Construction and land 2,484 2,444 40 2,484 9 Manufactured homes 431 — 425 425 295 Floating homes — — — — — Other consumer 163 — 163 163 69 Commercial business 2,883 2,296 587 2,883 179 Total $ 15,204 $ 10,610 $ 4,374 $ 14,984 $ 945 December 31, 2017 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Total Recorded Investment Related Allowance One-to-four family $ 6,562 $ 3,197 $ 3,059 $ 6,256 $ 555 Home equity 1,149 677 351 1,028 120 Commercial and multifamily 1,722 1,699 — 1,699 — Construction and land 141 100 41 141 13 Manufactured homes 409 23 362 385 258 Floating homes — — — — — Other consumer 194 125 69 194 43 Commercial business 1,017 784 216 1,000 135 Total $ 11,194 $ 6,605 $ 4,098 $ 10,703 $ 1,124 The following tables provide the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2018 and 2017, respectively, by loan types (in thousands): Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One-to-four family $ 4,826 $ 72 $ 6,603 $ 117 Home equity 807 10 1,008 10 Commercial and multifamily 3,204 46 1,732 24 Construction and land 1,305 86 114 (1 ) Manufactured homes 386 11 306 9 Other consumer 163 2 58 1 Commercial business 2,338 69 348 5 Total $ 13,029 $ 296 $ 10,169 $ 165 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One-to-four family $ 5,594 $ 180 $ 5,718 $ 269 Home equity 926 25 921 30 Commercial and multifamily 2,487 134 1,652 72 Construction and land 1,313 93 91 2 Manufactured homes 405 27 311 19 Other consumer 179 7 60 3 Commercial business 1,942 125 487 16 Total $ 12,846 $ 591 $ 9,240 $ 411 Forgone interest on nonaccrual loans was $24,000 and $12,000 for the nine months ended September 30, 2018 and 2017, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at September 30, 2018 and December 31, 2017. Troubled debt restructurings. Rate Modification Term Modification Payment Modification Combination Modification There were four loans, totalling $506,000 that were modified as TDRs and oneTDR loan of $16,000 paid off during the nine months ended September 30, 2018, compared to one $1.3 million one-to-four family residential loan modified as a TDR during the nine months ended September 30, 2017. The following TDR loans paid off during the first nine months of 2017: a $125,000 one-to-four family residential loan, a $14,000 manufactured home loan, one $86,000 home equity loan, a $27,000 land loan, and a $359,000 commercial/multifamily loan. 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 nine months ended September 30, 2018 and 2017. There were no TDRs for which there was a payment default within the first 12 months of modification during the nine months ended September 30, 2018 and 2017. The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in TDRs. |