Loans | (5) Loans The loan portfolio segments and classes are as follows (in thousands): September 30, December 31, Real estate mortgage loans: One-to four-family residential $ 79,042 $ 52,708 Commercial 152,688 22,043 Multi-family 16,173 10,622 Land and construction 26,680 7,075 Total real estate mortgage loans 274,583 92,448 Commercial loans 43,974 16,773 Consumer loans 4,358 1,398 Total loans 322,915 110,619 Deduct: Deferred loan fees, net (341 ) (124 ) Allowance for loan losses (1,947 ) (1,726 ) Undisbursed loan proceeds (271 ) (103 ) Loans, net $ 320,356 $ 108,666 The Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with policies set forth and approved by the Company’s board of directors. The portfolio segments identified by the Company are as follows: Real Estate Mortgage Loans. One-to four-family residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. Commercial real estate loans are secured by the subject property. Underwriting standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Multi-family real estate loans follow the same underwriting criteria as commercial real estate loans. These loans are generally considered to have more credit risk than traditional one-to four-family residential loans because these loans tend to involve larger loan balances and their repayment is typically dependent upon the successful operation and management of the underlying real estate. Land and construction loans are to finance the construction of owner-occupied and lease properties. These loans are categorized as construction loans during the construction period, later converting to commercial or one-to four-family residential real estate loans after the construction is complete and amortization of the loan begins. Land and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Land and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Land and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sale information. The Company also makes commercial loans on occasion for the purchase of land for future development by the borrower. The Company carefully analyzes the borrower and the intended use of the property and the viability thereof. Commercial Loans. Consumer Loans. An analysis of the change in the allowance for loan losses follows (in thousands): Real Commercial Consumer Unallocated Total Three Months Ended September 30, 2015: Beginning balance $ 1,313 496 5 69 $ 1,883 Provision (credit) for loan losses (116 ) (29 ) 15 130 — Charge-offs — — — — — Recoveries 9 54 1 — 64 Ending balance $ 1,206 521 21 199 $ 1,947 Three Months Ended September 30, 2014: Beginning balance 1,517 245 9 — $ 1,771 Provision (credit) for loan losses (6 ) 24 2 — 20 Charge-offs (14 ) — (4 ) — (18 ) Recoveries 3 19 1 — 23 Ending balance $ 1,500 288 8 — $ 1,796 Nine Months Ended September 30, 2015: Beginning balance 1,409 308 9 — $ 1,726 Provision (credit) for loan losses (326 ) 118 9 199 — Charge-offs (1 ) (9 ) — — (10 ) Recoveries 124 104 3 — 231 Ending balance $ 1,206 521 21 199 $ 1,947 Nine Months Ended September 30, 2014: Beginning balance 1,417 208 10 83 $ 1,718 Provision (credit) for loan losses 84 661 (2 ) (83 ) 660 Charge-offs (20 ) (626 ) (9 ) — (655 ) Recoveries 19 45 9 — 73 Ending balance $ 1,500 288 8 — $ 1,796 At September 30, 2015: Individually evaluated for impairment: Recorded investment $ 1,649 549 — — 2,198 Balance in allowance for loan losses $ 12 9 — — 21 Collectively evaluated for impairment: Recorded investment $ 272,250 43,364 4,358 — 319,972 Balance in allowance for loan losses $ 1,194 512 21 199 1,926 Acquired with deteriorated credit quality: Recorded investment $ 684 61 — — 745 Balance in allowance for loan losses $ — — — — — At December 31, 2014: Individually evaluated for impairment: Recorded investment $ 4,028 768 — — 4,796 Balance in allowance for loan losses $ 301 9 — — 310 Collectively evaluated for impairment: Recorded investment $ 88,420 16,005 1,398 — 105,823 Balance in allowance for loan losses $ 1,108 299 9 — 1,416 The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further, commercial loans over $500,000 are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will determine the appropriate loan grade. Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of a deterioration in the credit worthiness of the borrower; or (c) the borrower contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged-off as a loss. The Company uses the following definitions for risk ratings: Pass Special Mention Substandard Doubtful Loss The following summarizes the loan credit quality (in thousands): Real Estate Mortgage Loans One-to Four-Family Commercial Multi- Land and Commercial Consumer Total Credit Risk Profile by Internally Assigned Grade: At September 30, 2015: Grade: Pass $ 77,013 150,511 16,075 25,471 40,310 4,325 $ 313,705 Special mention 1,369 1,349 — 955 3,312 33 7,018 Substandard 660 828 98 254 352 — 2,192 Total $ 79,042 152,688 16,173 26,680 43,974 4,358 $ 322,915 At December 31, 2014: Grade: Pass $ 52,392 21,385 10,498 6,864 15,788 1,398 $ 108,325 Special mention 316 413 — 211 94 — 1,034 Substandard — 245 124 — 891 — 1,260 Total $ 52,708 22,043 10,622 7,075 16,773 1,398 $ 110,619 The Company 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. Age analysis of past-due loans is as follows (in thousands): Accruing Loans 30-59 Days 60-89 Days 90 Days Or Total Past Current Nonaccrual Total At September 30, 2015: Real estate mortgage loans: One-to four-family $ — — 46 46 78,956 40 79,042 Commercial 93 — — 93 152,124 471 152,688 Multi-family — — — — 16,074 99 16,173 Land and construction 513 — 114 627 25,799 254 26,680 Commercial loans 758 — — 758 43,216 — 43,974 Consumer loans — 5 — 5 4,353 — 4,358 Total $ 1,364 5 160 1,529 320,522 864 322,915 At December 31, 2014: Real estate mortgage loans: One-to four-family 59 — — 59 52,649 — 52,708 Commercial — — — — 22,043 — 22,043 Multi-family — — — — 10,498 124 10,622 Land and construction — — — — 7,075 — 7,075 Commercial loans 167 — — 167 15,838 768 16,773 Consumer loans 2 — — 2 1,396 — 1,398 Total $ 228 — — 228 109,499 892 110,619 (1) Loans 90 days or greater past due consisted of two performing loans which were only past due while awaiting completion of a renewal process The following summarizes the amount of impaired loans (in thousands): With No Related With an Allowance Recorded Total (2) Recorded Unpaid Recorded Unpaid Related Recorded Unpaid Related September 30, 2015: Real estate mortgage loans: One-to four-family residential $ 326 326 137 137 12 463 463 12 Commercial 833 1,369 — — — 833 1,369 — Multi-family 99 248 — — — 99 248 — Land and construction 254 257 — — — 254 257 — Commercial loans 458 488 91 96 9 549 584 9 $ 1,970 2,688 228 233 21 2,198 2,921 21 December 31, 2014: Real estate mortgage loans: One-to four-family residential — — 123 140 12 123 140 12 Commercial 380 966 3,401 3,401 289 3,781 4,367 289 Multi-family 124 265 — — — 124 265 — Commercial loans 664 750 104 107 9 768 857 9 $ 1,168 1,981 3,628 3,648 310 4,796 5,629 310 (2) Excludes $745,000 in purchased credit impaired loans at September 30, 2015 The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): Three Months Ended September 30, 2015 2014 Average Interest Interest Average Interest Interest Recorded Income Income Recorded Income Income Real estate mortgage loans: One-to-four-family residential $ 452 7 4 1,636 22 32 Commercial 839 7 14 4,755 67 80 Multi-family 101 — 2 134 — 5 Land and construction 255 — 10 111 — 1 Commercial loans 552 — 10 720 — 16 Total $ 2,199 14 40 7,356 89 134 Nine Months Ended September 30, 2015 2014 Average Interest Interest Average Interest Interest Recorded Income Income Recorded Income Income Real estate mortgage loans: One-to-four-family residential $ 231 11 8 1,653 31 53 Commercial 1,341 103 106 4,796 222 236 Multi-family 110 — 8 147 — 15 Land and construction 85 — 10 112 — 2 Commercial loans 590 — 33 708 — 22 Total $ 2,357 114 165 7,416 253 328 Loans are classified as troubled debt restructurings (TDRs) when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. TDRs entered into during the three- and nine-months ended September 30, 2015 and 2014 are as follows (dollars in thousands): Number Pre- Post- Troubled Debt Restructurings: For the Three Months Ended September 30, 2015: One-to four-family residential loans - Modified interest rate and amortization 1 $ 328 $ 328 For the Nine Months Ended September 30, 2015: One-to four-family residential loans - Modified interest rate and amortization 1 $ 328 $ 328 Troubled Debt Restructurings: For the Three Months Ended September 30, 2014: Commercial loans- Modified interest rate and amortization 6 $ 740 $ 116 For the Nine Months Ended September 30, 2014: Commercial loans- Modified interest rate and amortization 6 $ 740 $ 116 The allowance for loan losses on all loans that have been restructured and are considered TDRs is included in the Companies specific allowance for loan losses. The specific allowance for loan losses is determined on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral-dependent. TDRs that have subsequently defaulted are considered collateral-dependent. There were no TDRs during the three and nine months ended September 30, 2014 that subsequently defaulted. TDRs that were restructured during 2015 that subsequently defaulted during the three and nine months ended September 30, 2015 are as follows (dollars in thousands): Number Recorded Commercial mortgage loan 1 $ 86 |