LOANS | 6. LOANS Portfolio loans consist of the following: September 30, December 31, 2017 2016 (Dollars in thousands) Commercial loans Multifamily $ 126,977 $ 93,597 Nonresidential 366,747 231,401 Land 13,666 8,373 Construction 108,105 68,158 Secured 167,433 95,343 Unsecured 8,148 7,386 Total commercial loans 791,076 504,258 Residential mortgage loans One-to four-family 851,863 762,926 Construction 57,081 35,695 Total residential mortgage loans 908,944 798,621 Consumer loans Home equity 193,402 165,054 Auto 56,883 39,609 Marine 1,564 1,796 Recreational vehicle 6,249 7,602 Other 5,594 2,537 Total consumer loans 263,692 216,598 Total loans 1,963,712 1,519,477 Less: Allowance for loan losses 20,555 19,087 Deferred loan costs, net (4,538 ) (3,187 ) Total 16,017 15,900 Loans, net $ 1,947,695 $ 1,503,577 The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and are based on impairment method as of September 30, 2017 and December 31, 2016 and activity for the three and nine months ended September 30, 2017 and 2016. Allowance For Loan Losses Commercial Loans Residential Loans Consumer Loans Total (Dollars in thousands) For the three months ended September 30, 2017 Beginning balance $ 10,821 $ 5,968 $ 2,871 $ 19,660 Provision (recovery) 512 369 (160 ) 721 Charge-offs (12 ) (427 ) (147 ) (586 ) Recoveries 361 136 263 760 Ending balance $ 11,682 $ 6,046 $ 2,827 $ 20,555 For the nine months ended September 30, 2017 Beginning balance $ 10,824 $ 5,538 $ 2,725 $ 19,087 Provision 1,537 1,234 267 3,038 Charge-offs (1,335 ) (930 ) (626 ) (2,891 ) Recoveries 656 204 461 1,321 Ending balance $ 11,682 $ 6,046 $ 2,827 $ 20,555 As of September 30, 2017 Period-end amount allocated to: Loans individually evaluated for impairment $ 16 $ 1,169 $ 411 1,596 Loans collectively evaluated for impairment 11,612 4,877 2,416 18,905 Loans acquired with deteriorated credit quality 54 — — 54 Ending balance $ 11,682 $ 6,046 $ 2,827 $ 20,555 Period-end balances: Loans individually evaluated for impairment 2,322 16,718 7,314 26,354 Loans collectively evaluated for impairment 787,550 892,226 256,378 1,936,154 Loans acquired with deteriorated credit quality 1,204 — — 1,204 Ending balance $ 791,076 $ 908,944 $ 263,692 $ 1,963,712 Allowance For Loan Losses Commercial Loans Residential Loans Consumer Loans Total For the three months ended September 30, 2016 Beginning balance $ 8,958 $ 5,644 $ 2,570 $ 17,172 Provision 842 268 234 1,344 Charge-offs (533 ) (166 ) (222 ) (921 ) Recoveries 527 20 92 639 Ending balance $ 9,794 $ 5,766 $ 2,674 $ 18,234 For the nine months ended September 30, 2016 Beginning balance $ 8,077 $ 6,630 $ 3,005 $ 17,712 Provision (recovery) 4,055 (359 ) 198 3,894 Charge-offs (3,026 ) (612 ) (977 ) (4,615 ) Recoveries 688 107 448 1,243 Ending balance $ 9,794 $ 5,766 $ 2,674 $ 18,234 As of December 31, 2016 Period-end amount allocated to: Loans individually evaluated for impairment $ 1,271 $ 1,245 $ 500 $ 3,016 Loans collectively evaluated for impairment 9,553 4,293 2,225 16,071 Ending balance $ 10,824 $ 5,538 $ 2,725 $ 19,087 Period-end balances: Loans individually evaluated for impairment $ 6,018 $ 17,485 $ 8,045 $ 31,548 Loans collectively evaluated for impairment 498,240 781,136 208,553 1,487,929 Ending balance $ 504,258 $ 798,621 $ 216,598 $ 1,519,477 The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on an analysis using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, estimated collateral values, general economic conditions in the market area and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Other loans not reviewed specifically by management are evaluated as a homogenous group of loans (generally single-family residential mortgage loans and all consumer credits except marine loans) using a loss factor applied to the outstanding loan balance to determine the level of reserve required. This loss factor consists of two components, a quantitative and a qualitative component. The quantitative component is based on a historical analysis of all charged-off loans, net of recoveries. In determining the qualitative factors, consideration is given to such attributes as lending policies, economic conditions, nature and volume of the portfolio, management, loan quality trend, loan review, collateral value, concentrations, economic cycles and other external factors. As of September 30, 2017, the Company evaluated 21 quarters of net charge-off history and applied this information to the current period. This component is combined with the qualitative component to arrive at the loss factor, which is applied to the outstanding balance of homogenous loans. The following table presents loans individually evaluated for impairment by class of loans as of and for nine months ended September 30, 2017: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 466 $ 402 $ — $ 309 $ 3 $ 3 Nonresidential 673 153 — 818 6 6 Land 715 9 — 15 — — Construction 2,467 — — — — — Secured 263 210 — 195 1 1 Unsecured 194 — — — — — Total commercial loans 4,778 774 — 1,337 10 10 Residential mortgage loans One-to four-family 6,793 5,814 — 6,025 81 73 Construction — — — — — — Total residential mortgage loans 6,793 5,814 — 6,025 81 73 Consumer loans Home equity 1,556 1,177 — 1,477 11 11 Auto 8 1 — 9 — — Marine 540 169 — 200 — — Recreational vehicle 809 389 — 220 12 12 Other 1 1 — — — — Total consumer loans 2,914 1,737 — 1,906 23 23 Total $ 14,485 $ 8,325 $ — $ 9,268 $ 114 $ 106 With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — $ — $ — $ — Nonresidential 1,582 1,548 16 2,010 86 85 Land — — — — — — Construction — — — — — — Secured — — — 43 — — Unsecured — — — — — — Total commercial loans 1,582 1,548 16 2,053 86 85 Residential mortgage loans One-to four-family 11,042 10,904 1,169 10,799 385 343 Construction — — — — — — Total residential mortgage loans 11,042 10,904 1,169 10,799 385 343 Consumer loans Home equity 5,132 5,055 387 5,173 214 199 Auto — — — — — — Marine 102 102 1 105 4 4 Recreational vehicle 432 420 23 616 14 14 Other — — — — — — Total consumer loans 5,666 5,577 411 5,894 232 217 Total 18,290 18,029 1,596 18,746 703 645 Total impaired loans $ 32,775 $ 26,354 $ 1,596 $ 28,014 $ 817 $ 751 The following table presents loans individually evaluated for impairment by class of loans as of and for nine months ended September 30, 2016: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 59 $ — $ — $ — $ — $ — Nonresidential 952 149 — 248 4 4 Land 3,922 134 — 322 — — Construction 3,594 — — — — — Secured 3,743 3,700 — 3,700 — — Unsecured 821 — — — 7 7 Total commercial loans 13,091 3,983 — 4,270 11 11 Residential mortgage loans One-to four-family 7,401 5,727 — 6,049 55 49 Construction — — — — — — Total residential mortgage loans 7,401 5,727 — 6,049 55 49 Consumer loans Home equity 1,728 1,272 — 1,415 14 14 Auto 13 8 — 10 — — Marine 543 301 — 294 — — Recreational vehicle 637 322 — 241 4 4 Other — — — 3 — — Total consumer loans 2,921 1,903 — 1,963 18 18 Total $ 23,413 $ 11,613 $ — $ 12,282 $ 84 $ 78 With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — $ — $ — $ — Nonresidential 11,660 9,164 935 7,911 208 206 Land — — — — — — Construction — — — — — — Secured 616 550 81 692 — — Unsecured — — — — — — Total commercial loans 12,276 9,714 1,016 8,603 208 206 Residential mortgage loans One-to four-family 12,123 12,121 1,342 12,587 423 373 Construction — — — — — — Total residential mortgage loans 12,123 12,121 1,342 12,587 423 373 Consumer loans Home equity 5,997 5,997 435 6,592 257 238 Auto — — — — — — Marine 153 153 4 158 6 4 Recreational vehicle 655 655 77 815 20 19 Other — — — 2 — — Total consumer loans 6,805 6,805 516 7,567 283 261 Total 31,204 28,640 2,874 28,757 914 840 Total impaired loans $ 54,617 $ 40,253 $ 2,874 $ 41,039 $ 998 $ 918 The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2016: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With no specific allowance recorded Commercial loans Multifamily $ 55 $ — $ — Nonresidential 2,278 1,489 — Land 3,922 34 — Construction 3,594 — — Secured 242 190 — Unsecured 713 — — Total commercial loans 10,804 1,713 — Residential mortgage loans One-to four-family 8,736 6,758 — Construction — — — Total residential mortgage loans 8,736 6,758 — Consumer loans Home equity 2,159 1,583 — Auto 11 3 — Marine 585 267 — Recreational vehicle 433 120 — Other — — — Total consumer loans 3,188 1,973 — Total $ 22,728 $ 10,444 $ — With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — Nonresidential 6,930 4,133 1,193 Land — — — Construction — — — Secured 237 172 78 Unsecured — — — Total commercial loans 7,167 4,305 1,271 Residential mortgage loans One-to four-family 10,810 10,727 1,245 Construction — — — Total residential mortgage loans 10,810 10,727 1,245 Consumer loans Home equity 5,390 5,335 426 Auto — — — Marine 108 108 1 Recreational vehicle 639 629 73 Other — — — Total consumer loans 6,137 6,072 500 Total 24,114 21,104 3,016 Total impaired loans $ 46,842 $ 31,548 $ 3,016 The unpaid principal balance is the total amount of the loan that is due to Home Savings. The recorded investment includes the unpaid principal balance less any charge-offs or partial charge-offs applied to specific loans. The unpaid principal balance and the recorded investment both exclude accrued interest receivable and deferred loan costs, both of which are immaterial. The following table presents loans individually evaluated for impairment by class of loans as of and for the three months ended September 30, 2017: Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 408 $ — $ — Nonresidential 809 3 3 Land 9 — — Construction — — — Secured 200 1 1 Unsecured — — — Total commercial loans 1,426 4 4 Residential mortgage loans One-to four-family 5,788 35 33 Construction — — — Total residential mortgage loans 5,788 35 33 Consumer loans Home equity 1,356 4 4 Auto 10 — — Marine 169 — — Recreational vehicle 271 3 3 Other 1 — — Total consumer loans 1,807 7 7 Total $ 9,021 $ 46 $ 44 With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — Nonresidential 1,002 26 26 Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans 1,002 26 26 Residential mortgage loans One-to four-family 10,666 112 112 Construction — — — Total residential mortgage loans 10,666 112 112 Consumer loans Home equity 4,987 65 65 Auto — — — Marine 103 1 1 Recreational vehicle 556 5 5 Other — — — Total consumer loans 5,646 71 71 Total 17,314 209 209 Total impaired loans $ 26,335 $ 255 $ 253 The following table presents loans individually evaluated for impairment by class of loans as of and for the three months ended September 30, 2016: Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ — $ — $ — Nonresidential 238 1 1 Land 259 — Construction — — — Secured 3,700 — — Unsecured — — — Total commercial loans 4,197 1 1 Residential mortgage loans One-to four-family 6,125 19 19 Construction — — — Total residential mortgage loans 6,125 19 19 Consumer loans Home equity 1,306 9 9 Auto 9 — — Marine 302 — — Recreational vehicle 298 1 1 Other 2 — — Total consumer loans 1,917 10 10 Total $ 12,239 $ 30 $ 30 With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — Nonresidential 8,868 84 84 Land — — — Construction — — — Secured 742 — — Unsecured — — — Total commercial loans 9,610 84 84 Residential mortgage loans One-to four-family 12,077 132 127 Construction — — — Total residential mortgage loans 12,077 132 127 Consumer loans Home equity 6,138 77 76 Auto — — — Marine 155 2 2 Recreational vehicle 724 6 6 Other — — — Total consumer loans 7,017 85 84 Total 28,704 301 295 Total impaired loans $ 40,943 $ 331 $ 325 Home Savings reclassifies a collateralized mortgage loan and a consumer loan secured by real estate to real estate owned and other repossessed assets once it has either obtained legal title to the real estate collateral or the borrower voluntarily conveys all interest in the real property to the Bank to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The table below presents loans that are in the process of foreclosure at September 30, 2017 and December 31, 2016, but legal title, deed in lieu of foreclosure or similar legal agreement to the property has not yet been obtained: September 30, 2017 December 31, 2016 Unpaid Principal Balance Recorded Investment Unpaid Principal Balance Recorded Investment (Dollars in thousands) (Dollars in thousands) Mortgage loans in process of foreclosure $ 2,975 $ 2,805 $ 3,025 $ 2,576 Consumer loans in process of foreclosure 955 798 1,069 795 The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of September 30, 2017: Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing As of September 30, 2017 Nonaccrual Loans past due over 90 days and still accruing (Dollars in thousands) Commercial loans Multifamily $ 402 $ — Nonresidential 1,234 — Land 9 — Construction — — Secured 234 — Unsecured — — Total commercial loans 1,879 — Residential mortgage loans One-to four-family 6,627 — Construction — — Total residential mortgage loans 6,627 — Consumer Loans Home equity 1,714 — Auto 38 — Marine 169 — Recreational vehicle 409 6 Other 2 2 Total consumer loans 2,332 8 Total nonaccrual loans and loans past due over 90 days and still accruing $ 10,838 $ 8 The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of December 31, 2016: Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing As of December 31, 2016 Nonaccrual Loans past due over 90 days and still accruing (Dollars in thousands) Commercial loans Multifamily $ — $ — Nonresidential 3,546 — Land 34 — Construction — — Secured 361 — Unsecured — — Total commercial loans 3,941 — Residential mortgage loans One-to four-family 6,084 — Construction — — Total residential mortgage loans 6,084 — Consumer Loans Home equity 1,936 — Auto 31 — Marine 267 — Recreational vehicle 178 — Other 2 — Total consumer loans 2,414 — Total nonaccrual loans and loans past due over 90 days and still accruing $ 12,439 $ — The following table presents an age analysis of past-due loans, segregated by class of loans as of September 30, 2017: Past Due Loans (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Loans Total Loans Commercial loans Multifamily $ — $ 402 $ 402 $ 126,575 $ 126,977 Nonresidential 206 1,204 7 1,417 365,330 366,747 Land — — 9 9 13,657 13,666 Construction — — — — 108,105 108,105 Secured 157 16 212 385 167,048 167,433 Unsecured — — — — 8,148 8,148 Total commercial loans 363 1,220 630 2,213 788,863 791,076 Residential mortgage loans One-to four-family 3,588 1,305 5,066 9,959 841,904 851,863 Construction — — — — 57,081 57,081 Total residential mortgage loans 3,588 1,305 5,066 9,959 898,985 908,944 Consumer Loans: Home equity 1,026 192 1,467 2,685 190,717 193,402 Automobile 137 76 17 230 56,653 56,883 Marine 13 — 169 182 1,382 1,564 Recreational vehicle 357 164 298 819 5,430 6,249 Other 2 13 3 18 5,576 5,594 Total consumer loans 1,535 445 1,954 3,934 259,758 263,692 Total loans $ 5,486 $ 2,970 $ 7,650 $ 16,106 $ 1,947,606 $ 1,963,712 The following table presents an age analysis of past-due loans, segregated by class of loans as of December 31, 2016: Past Due Loans (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Loans Total Loans Commercial loans Multifamily $ — $ — $ — $ — $ 93,597 $ 93,597 Nonresidential 3,511 — 61 3,572 227,829 231,401 Land — — 34 34 8,339 8,373 Construction — — — — 68,158 68,158 Secured — — 361 361 94,982 95,343 Unsecured — — — — 7,386 7,386 Total commercial loans 3,511 — 456 3,967 500,291 504,258 Residential mortgage loans One-to four-family 3,774 1,717 5,461 10,952 751,974 762,926 Construction — — — — 35,695 35,695 Total residential mortgage loans 3,774 1,717 5,461 10,952 787,669 798,621 Consumer Loans: Home equity 941 458 1,669 3,068 161,986 165,054 Automobile 130 — 3 133 39,476 39,609 Marine — — 267 267 1,529 1,796 Recreational vehicle 131 347 — 478 7,124 7,602 Other 1 3 2 6 2,531 2,537 Total consumer loans 1,203 808 1,941 3,952 212,646 216,598 Total loans $ 8,488 $ 2,525 $ 7,858 $ 18,871 $ 1,500,606 $ 1,519,477 As of September 30, 2017 and December 31, 2016, the Company has a recorded investment in troubled debt restructurings of $21.3 million and $26.6 million, respectively. The Company allocated $1.6 million of specific allowance for those loans at September 30, 2017 and $3.0 million at December 31, 2016. The Company has committed to lend additional amounts totaling up to $37,000 and $31,000 at September 30, 2017 and December 31, 2016, respectively. The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2017: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (In thousands) Commercial loans Multifamily — $ — $ — Nonresidential — — — Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans — — — Residential mortgage loans One-to four-family 1 147 169 Construction — — — Total residential mortgage loans 1 147 169 Consumer loans Home equity — — — Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans — — — Total restructured loans 1 $ 147 $ 169 The troubled debt restructurings described above had no effect on the allowance for loan losses and resulted in no charge-offs during the three months ended September 30, 2017. The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2017: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (In thousands) Commercial loans Multifamily — $ — $ — Nonresidential — — — Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans — — — Residential mortgage loans One-to four-family 2 222 253 Construction — — — Total residential mortgage loans 2 222 253 Consumer loans Home equity — — — Auto — — — Marine — — — Recreational vehicle 1 115 115 Other — — — Total consumer loans 1 115 115 Total restructured loans 3 $ 337 $ 368 The troubled debt restructurings described above increased the allowance for loan losses by $6,000 and resulted in no charge-offs during the nine months ended September 30, 2017. The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2016: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — $ — Nonresidential 1 1,371 1,377 Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans 1 1,371 1,377 Residential mortgage loans One-to four-family 1 113 114 Construction — — — Total residential mortgage loans 1 113 114 Consumer loans Home equity — — — Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans — — — Total restructured loans 2 $ 1,484 $ 1,491 The troubled debt restructurings described above increased the allowance for loan losses by $20,000, and resulted in no charge-offs during the three months ended September 30, 2016. The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2016: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — $ — Nonresidential 3 5,459 5,465 Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans 3 5,459 5,465 Residential mortgage loans One-to four-family 4 429 449 Construction — — — Total residential mortgage loans 4 429 449 Consumer loans Home equity 3 130 134 Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans 3 130 134 Total restructured loans 10 $ 6,018 $ 6,048 The troubled debt restructurings described above increased the allowance for loan losses by $31,000 and resulted in no charge-offs during the nine months ended September 30, 2017. The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within a twelve-month cycle following the modification during the period ended September 30, 2017. Number of loans Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — Nonresidential — — Land — — Construction — — Secured — — Unsecured — — Total commercial loans — — Residential mortgage loans One-to four-family 1 162 Construction — — Total residential mortgage loans 1 162 Consumer loans Home equity 1 47 Auto — — Marine — — Recreational vehicle — — Other — — Total consumer loans 1 47 Total restructured loans 2 $ 209 The troubled debt restructurings that subsequently defaulted described above resulted in no charge-offs during the three and nine months ended September 30, 2017, and had no effect on the provision for loan losses. The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within a twelve month cycle following the modification during the period ended September 30, 2016: Number of loans Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — Nonresidential — — Land — — Construction — — Secured — — Unsecured — — Total commercial loans — — Residential mortgage loans One-to four-family 1 4 Construction — — Total residential mortgage loans 1 4 Consumer loans Home equity — — Auto — — Marine — — Recreational vehicle — — Other — — Total consumer loans — — Total restructured loans 1 $ 4 The troubled debt restructurings that subsequently defaulted described above resulted in no of charge-offs during the three and nine months ended September 30, 2016, and had no effect on the provision for loan losses. A troubled debt restructuring is considered to be in payment default once it is 30 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Credit Quality Indicators: 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. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans past due 90 cumulative days, and all non-homogeneous loans, including commercial loans and commercial real estate loans. Smaller balance homogeneous loans are primarily monitored by payment status. Asset quality ratings are divided into two groups: Pass (unclassified) and Classified. Within the unclassified group, certain loans that display potential weakness are risk rated as special mention. In addition, there are three classified risk ratings: substandard, doubtful and loss. These specific credit risk categories are defined as follows: Special Mention. Loans classified as special mention have potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loss. Loans classified as loss are considered uncollectible and of such little value, that continuance as assets is not warranted. Although there may be a chance of recovery on these assets, it is not practical or desirable to defer writing off the asset. The Company monitors loans on a monthly basis to determine if they should be included in one of the categories listed above. All impaired non-homogeneous credits classified as substandard, doubtful or loss are analyzed on an individual basis for a specific reserve requirement. This analysis is performed on each individual credit at least annually or more frequently if warranted. As of September 30, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Loans September 30, 2017 (Dollars in thousands) Unclassified Classified Unclassified Special Mention Substandard Doubtful Loss Total Classified Total Loans Commercial Loans Multifamily $ 124,441 $ 1,975 $ 561 $ — $ — $ 561 $ 126,977 Nonresidential 355,846 3,171 7,730 — — 7,730 366,747 Land 13,657 — 9 — — 9 13,666 Construction 107,702 403 — — — — 108,105 Secured 137,977 1,421 28,035 — — 28,035 167,433 Unsecured 8,054 — 94 — — 94 8,148 Total commercial loans 747,677 6,970 36,429 — — 36,429 791,076 Residential mortgage loans One-to four-family 842,928 769 8,166 — — 8,166 851,863 Construction 57,081 — — — — — 57,081 Total residential mortgage loans 900,009 769 8,166 — — 8,166 908,944 Consumer Loans Home equity 191,689 — 1,713 — — 1,713 193,402 Auto 56,845 — 38 — — 38 56,883 Marine 1,395 — 169 — — 169 1,564 Recreational vehicle 5,840 — 409 — — 409 6,249 Other 5,592 — 2 — — 2 5,594 Total consumer loans 261,361 — 2,331 — — 2,331 263,692 Total loans $ 1,909,047 $ 7,739 $ 46,926 $ — $ — $ 46,926 $ 1,963,712 Loans December 31, 2016 (Dollars in thousands) Unclassified Classified Unclassified Special Mention Substandard Doubtful Loss Total Classified Total Loans Commercial Loans Multifamily $ 89,468 $ 3,564 $ 565 $ — $ — $ 565 $ 93,597 Nonresidential 217,204 6,037 8,160 — — 8,160 231,401 Land 8,339 — 34 — — 34 8,373 Construction 68,158 — — — — — 68,158 Secured 89,756 3,420 2,167 — — 2,167 95,343 Unsecured 7,291 — 95 — — 95 7,386 Total commercial loans 480,216 13,021 11,021 — — 11,021 504,258 Residential mortgage loans One-to four-family 754,996 104 7,826 — — 7,826 762,926 Construction 35,695 — — — — — 35,695 Total residential mortgage loans 790,691 104 7,826 — — 7,826 798,621 Consumer Loans Home equity 163,101 — 1,953 — — 1,953 165,054 Auto 39,577 1 31 — — 31 39,609 Marine 1,530 — 266 — — 266 1,796 Recreational vehicle 7,424 — 178 — — 178 7,602 Other 2,535 — 2 — — 2 2,537 Total consumer loans 214,167 1 2,430 — — 2,430 216,598 Total loans $ 1,485,074 $ 13,126 $ 21,277 $ — $ — $ 21,277 $ 1,519,477 Purchased Credit Impaired Loans: The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows: September 30, 2017 (Dollars in thousands) Commercial loans $ 1,204 Residential mortgage loans — Consumer loans — Outstanding balance $ 1,204 Carrying amount, net of allowance of $54,000 $ 1,150 Accretable yield, or income expected to be collected, is as follows: Three Months Ended Nine Months Ended September 30, 2017 September 30, 2017 (Dollars in thousands) Beginning of period $ 116 $ — New loans purchased — 158 Accretion of income 12 54 Balance at September 30 $ 104 $ 104 For the purchased credit impaired loans disclosed above, there was an increase of $54,000 in the allowance for loan losses for the three and nine months ended September 30, 2017. Purchased credit impaired loans acquired during the nine months ended September 30, 2017 for which it was probable at acquisition that all contractually required payments would not be collected are as follows: September 30, 2017 (Dollars in thousands) Contractually required payments receivable of loans purchased during the year: Commercial loans $ 4,499 Residential mortgage loans — Consumer loans — $ 4,499 Cash flow expected to be collected at acquisition $ 1,955 Fair value of acquired loans at acquisition 1,797 Income is not recognized on purchased credit impaired loans if the Company cannot reasonably estimate cash flows expected to be collected. The carrying amounts of such loans are as follows: September 30, 2017 (Dollars in thousands) Loans at beginning of year $ — Loans purchased during the year 1,797 Loans at end of period 1,204 |