Loans | (4) Loans The loan portfolio segments and classes are as follows (in thousands) At June 30, 2017 At December Real estate loans: One-to-four-family residential $ 136,032 $ 155,262 Commercial and multi-family 379,296 356,788 Construction and land 64,592 51,520 Home equity 22,706 21,902 Total real estate loans 602,626 585,472 Commercial loans 104,107 100,239 Consumer loans 1,041 1,478 Total loans 707,774 687,189 Deduct: Deferred loan fees, net (241 ) (131 ) Allowance for loan losses (3,670 ) (3,274 ) Loans, net $ 703,863 $ 683,784 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 Loans. One-to-four-family residential real estate loans are underwritten based on the borrower’s repayment capacity and source, value of the underlying property, credit history and stability. Commercial and multifamily real estate loans are secured by the subject property and are underwritten based on loan to value limits, cash flow coverage and general creditworthiness of the obligors. 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. Construction and Land 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 loans after the construction is complete and amortization of the loan begins. Real estate development 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. Construction loan funds are disbursed periodically based on the percentage of construction or development completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Construction and land 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 loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof. Home equity loans consists of either revolving line of credit, term, or second mortgage loans secured by one-to-four residential real estate. These loans have similar risk characteristics to one-to-four family loans and are secured by a first or second mortgage on the borrower’s principal residence or their second/vacation home (excluding investment/rental property). There are minimum credit score standards, maximum debt to income ratios and credit requirements on each home equity product. Home equity lines of credit are variable rate based on an index of Wall Street Journal prime rate with a margin. Commercial Loans. Consumer Loans. An analysis of the change in the allowance for loan losses follows (in thousands) Real Estate Commercial Consumer Unallocated Total Three Months Ended June 30, 2017: Beginning balance $ 2,831 586 7 219 $ 3,643 Provision (Credit) for loan losses 151 49 6 (206 ) — Charge-offs — — (10 ) — (10 ) Recoveries 11 25 1 — 37 Ending balance $ 2,993 660 4 13 $ 3,670 Three Months Ended June 30, 2016: Beginning balance $ 1,368 591 22 551 $ 2,532 Provision (Credit) for loan losses 881 (6 ) 12 (537 ) 350 Charge-offs (22 ) — — — (22 ) Recoveries 13 21 1 — 35 Ending balance $ 2,240 606 35 14 $ 2,895 Six Months Ended June 30, 2017: Beginning balance $ 2,473 469 6 326 $ 3,274 Provision (Credit) for loan losses 159 147 7 (313 ) — Charge-offs — — (10 ) — (10 ) Recoveries 361 44 1 — 406 Ending balance $ 2,993 660 4 13 $ 3,670 Six Months Ended June 30, 2016: Beginning balance $ 1,354 583 23 551 $ 2,511 Provision (Credit) for loan losses 881 (6 ) 12 (537 ) 350 Charge-offs (22 ) (11 ) (2 ) — (35 ) Recoveries 27 40 2 — 69 Ending balance $ 2,240 606 35 14 $ 2,895 At June 30, 2017: Individually evaluated for impairment: Recorded investment $ 532 350 — — $ 882 Balance in allowance for loan losses $ 13 — — — $ 13 Collectively evaluated for impairment: Recorded investment $ 323,950 72,224 290 — $ 396,464 Balance in allowance for loan losses $ 2,445 600 4 13 $ 3,062 Recorded investment in acquired loans accounted for under ASC 310-20 Loan Receivables $ 274,881 31,533 751 — $ 307,165 Balance in allowance for loan losses $ 535 60 — — $ 595 Recorded investment in acquired loans accounted for under ASC 310-30 Loans Acquired with Deteriorated Credit Quality $ 3,263 — — — $ 3,263 Balance in allowance for loan losses $ — — — — $ — At December 31, 2016: Individually evaluated for impairment: Recorded investment $ 1,035 500 36 — $ 1,571 Balance in allowance for loan losses $ 21 9 1 — $ 31 Collectively evaluated for impairment: Recorded investment $ 274,513 59,586 608 — $ 334,707 Balance in allowance for loan losses $ 1,687 378 4 326 $ 2,395 Recorded investment in acquired loans accounted for under ASC 310-20 Loan Receivables $ 307,605 40,153 834 — $ 348,592 Balance in allowance for loan losses $ 765 82 1 — $ 848 Recorded investment in acquired loans accounted for under ASC 310-30 Loans Acquired with Deteriorated Credit Quality $ 2,319 — — — $ 2,319 Balance in allowance for loan losses $ — — — — $ — 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. 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, multi-family and commercial real estate loans are generally reviewed periodically 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. 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 Loans One-to Commercial Construction Home Commercial Consumer Total Credit Risk Profile by Internally Assigned Grade: At June 30, 2017: Grade: Pass $ 134,276 $ 376,518 $ 64,149 $ 22,373 $ 103,123 $ 1,041 $ 701,480 Special mention 409 717 357 31 865 — 2,379 Substandard 1,347 2,061 86 302 119 — 3,915 Total $ 136,032 $ 379,296 $ 64,592 $ 22,706 $ 104,107 $ 1,041 $ 707,774 At December 31, 2016: Grade: Pass $ 153,965 $ 351,096 $ 49,901 $ 21,902 $ 98,714 $ 1,442 $ 677,020 Special mention 490 730 543 — 79 — 1,842 Substandard 807 4,962 1,076 — 1,446 36 8,327 Total $ 155,262 $ 356,788 $ 51,520 $ 21,902 $ 100,239 $ 1,478 $ 687,189 Age analysis of past-due loans is as follows (in thousands) Accruing Loans 30-59 60-89 90 Days Or Total Current Nonaccrual Total At June 30, 2017: Real estate mortgage loans: One-to-four family residential $ 218 $ 244 $ — $ 462 $ 135,031 $ 539 $ 136,032 Commercial Real Estate and Multifamily 773 — — 773 378,368 155 379,296 Construction and Land 193 — — 193 64,399 — 64,592 Home Equity 20 100 — 120 22,573 13 22,706 Commercial loans 22 — — 22 104,085 — 104,107 Consumer loans — — — — 1,041 — 1,041 Total $ 1,226 $ 344 $ — $ 1,570 $ 705,497 $ 707 $ 707,774 At December 31, 2016: Real estate mortgage loans: One-to-four family residential $ 501 $ 274 $ — $ 775 $ 154,487 $ — $ 155,262 Commercial Real Estate and Multifamily 778 — — 778 355,755 255 356,788 Construction and Land 1,519 — — 1,519 50,001 — 51,520 Home Equity 22 — — 22 21,880 — 21,902 Commercial loans 217 — — 217 100,022 — 100,239 Consumer loans 10 — — 10 1,432 36 1,478 Total $ 3,047 $ 274 $ — $ 3,321 $ 683,577 $ 291 $ 687,189 The following summarizes the amount of impaired loans (in thousands) With No Related With an Allowance Recorded Total Recorded Unpaid Recorded Unpaid Related Recorded Unpaid Related June 30, 2017 Real estate mortgage loans: One-to- four-family residential $ — $ — $ 311 $ 311 $ 13 $ 311 $ 311 $ 13 Commercial and Multifamily 221 636 — — — 221 636 — Commercial loans 350 385 — — — 350 385 — $ 571 $ 1,021 $ 311 $ 311 $ 13 $ 882 $ 1,332 $ 13 December 31, 2016: Real estate mortgage loans: One-to- four-family residential $ — $ — $ 448 $ 448 $ 21 $ 448 $ 448 $ 21 Commercial and Multifamily 587 1,568 — — — 587 1,568 — Commercial loans 427 457 73 77 9 500 534 9 Consumer Loans — — 36 36 1 36 36 1 $ 1,014 $ 2,025 $ 557 $ 561 $ 31 $ 1,571 $ 2,586 $ 31 The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands) Three Months Ended June 30, 2017 2016 Average Interest Interest Average Interest Interest Real estate mortgage loans: One-to-four-family residential $ 312 $ 4 $ 4 $ 454 $ 5 $ 5 Commercial real estate and Multifamily 231 11 10 1,021 5 21 Land and construction — — — 156 — — Commercial loans 353 6 6 525 6 6 Total $ 896 $ 21 $ 20 $ 2,156 $ 16 $ 32 Six Months Ended June 30, 2017 2016 Average Interest Interest Average Interest Interest Real estate mortgage loans: One-to-four-family residential $ 313 $ 10 $ 8 $ 457 $ 14 $ 12 Commercial real estate and Multifamily 238 19 17 1,030 24 47 Land and construction — — — 157 — 2 Commercial loans 422 15 15 530 18 18 Total $ 973 $ 44 $ 40 $ 2,174 $ 56 $ 79 During the six months ended June 30, 2017 and 2016, the Company did not enter into any debt restructurings and the Company had no loans restructured as troubled debt restructurings (“TDRs”) that subsequently defaulted that had been modified in the previous twelve month period. As of June 30, 2017 the Company had remaining approximately $436,000 in accruing TDRs and $76,000 of non-accruing TDRs. At June 30, 2017 the contractually required principal of Purchased Credit Impaired (“PCI”) loans acquired was $3.5 million. The recorded investment of PCI loans was $3.2 million. There were no additional losses generated during the six months ended June 30, 2017 from these loans. |