LOANS | 6. LOANS Portfolio loans consist of the following: March 31, December 31, 2019 2018 (Dollars in thousands) Commercial loans Multifamily $ 163,243 $ 134,143 Nonresidential 412,550 409,979 Land 17,090 16,830 Construction 135,048 141,686 Secured 240,376 233,306 Unsecured 6,364 6,987 Total commercial loans 974,671 942,931 Residential mortgage loans One-to four-family 934,586 927,255 Construction 45,102 43,435 Total residential mortgage loans 979,688 970,690 Consumer loans Home equity 183,956 185,661 Auto 77,921 78,686 Marine 1,131 1,206 Recreational vehicle 3,727 4,347 Other 8,263 7,141 Total consumer loans 274,998 277,041 Total loans 2,229,357 2,190,662 Less: Allowance for loan losses 20,446 20,443 Deferred loan costs, net (6,638 ) (6,623 ) Total 13,808 13,820 Loans, net $ 2,215,549 $ 2,176,842 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 March 31, 2019 and December 31, 2018 and activity for the three months ended March 31, 2019 and 2018. Allowance For Loan Losses Commercial Loans Residential Loans Consumer Loans Total (Dollars in thousands) For the three months ended March 31, 2019 Beginning balance $ 11,875 $ 5,923 $ 2,645 $ 20,443 Provision (recovery) 181 (178 ) 58 61 Charge-offs (88 ) (20 ) (325 ) (433 ) Recoveries 146 98 131 375 Ending balance $ 12,114 $ 5,823 $ 2,509 $ 20,446 As of March 31, 2019 Period-end amount allocated to: Loans individually evaluated for impairment $ 139 $ 782 $ 295 1,216 Loans collectively evaluated for impairment 11,975 5,041 2,214 19,230 Ending balance $ 12,114 $ 5,823 $ 2,509 $ 20,446 Period-end balances: Loans individually evaluated for impairment 3,276 12,759 5,131 21,166 Loans collectively evaluated for impairment 971,395 966,929 269,867 2,208,191 Ending balance $ 974,671 $ 979,688 $ 274,998 $ 2,229,357 Allowance For Loan Losses Commercial Loans Residential Loans Consumer Loans Total For the three months ended March 31, 2018 Beginning balance $ 12,542 $ 5,860 $ 2,800 $ 21,202 Provision (recovery) 396 (93 ) 104 407 Charge-offs — (85 ) (186 ) (271 ) Recoveries 157 19 96 272 Ending balance $ 13,095 $ 5,701 $ 2,814 $ 21,610 As of December 31, 2018 Period-end amount allocated to: Loans individually evaluated for impairment $ 103 $ 798 $ 300 1,201 Loans collectively evaluated for impairment 11,772 5,125 2,345 19,242 Loans acquired with deteriorated credit quality — — — — Ending balance $ 11,875 $ 5,923 $ 2,645 $ 20,443 Period-end balances: Loans individually evaluated for impairment 2,017 13,086 5,491 20,594 Loans collectively evaluated for impairment 940,914 957,604 271,550 2,170,068 Loans acquired with deteriorated credit quality — — — — Ending balance $ 942,931 $ 970,690 $ 277,041 $ 2,190,662 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 March 31, 2019, the Company evaluated 27 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 three months ended March 31, 2019: 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 $ 159 $ — $ — $ 85 $ 1 $ 1 Nonresidential 570 127 — 129 1 1 Land — — — — — — Construction 2,447 — — — — — Secured 235 — — — — — Unsecured 474 — — — — — Total commercial loans 3,885 127 — 214 2 2 Residential mortgage loans One-to four-family 5,196 4,316 — 4,612 29 20 Construction — — — — — — Total residential mortgage loans 5,196 4,316 — 4,612 29 20 Consumer loans Home equity 967 852 — 905 1 — Auto 22 14 — 16 — — Marine 354 105 — 125 — — Recreational vehicle 410 63 — 118 2 2 Other — — — — — — Total consumer loans 1,753 1,034 — 1,164 3 2 Total $ 10,834 $ 5,477 $ — $ 5,990 $ 34 $ 24 With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — $ — $ — $ — Nonresidential 2,717 2,717 38 1,952 45 37 Land — — — — — — Construction — — — — — — Secured 578 432 101 482 3 3 Unsecured — — — — — — Total commercial loans 3,295 3,149 139 2,434 48 40 Residential mortgage loans One-to four-family 8,579 8,443 782 8,311 147 111 Construction — — — — — — Total residential mortgage loans 8,579 8,443 782 8,311 147 111 Consumer loans Home equity 3,747 3,664 277 3,753 61 49 Auto — — — — — — Marine 89 89 1 90 1 1 Recreational vehicle 357 344 17 306 6 5 Other — — — — — — Total consumer loans 4,193 4,097 295 4,149 68 55 Total 16,067 15,689 1,216 14,894 263 206 Total impaired loans $ 26,901 $ 21,166 $ 1,216 $ 20,884 $ 297 $ 230 The following table presents loans individually evaluated for impairment by class of loans as of and for three months ended March 31, 2018: 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 $ 37 $ — $ — $ — $ — $ — Nonresidential 531 18 — 81 — — Land 715 9 — 9 — — Construction 2,467 — — — — — Secured 1,042 902 — 898 — — Unsecured 184 — — — — — Total commercial loans 4,976 929 — 988 — — Residential mortgage loans One-to four-family 6,304 5,371 — 5,406 28 18 Construction — — — — — — Total residential mortgage loans 6,304 5,371 — 5,406 28 18 Consumer loans Home equity 1,252 977 — 1,018 3 2 Auto 98 62 — 38 — — Marine 553 181 — 181 — — Recreational vehicle 535 116 — 134 2 2 Other 17 16 — 10 — — Total consumer loans 2,455 1,352 — 1,381 5 4 Total $ 13,735 $ 7,652 $ — $ 7,775 $ 33 $ 22 With a specific allowance recorded Commercial loans Multifamily $ 422 $ 275 $ 28 $ 275 $ — $ — Nonresidential 1,416 1,413 15 1,418 33 25 Land — — — — — — Construction — — — — — — Secured 819 558 473 585 — — Unsecured — — — — — — Total commercial loans 2,657 2,246 516 2,278 33 25 Residential mortgage loans One-to four-family 10,403 10,218 967 10,459 150 108 Construction — — — — — — Total residential mortgage loans 10,403 10,218 967 10,459 150 108 Consumer loans Home equity 4,558 4,475 319 4,658 69 56 Auto — — — — — — Marine 97 97 1 99 1 1 Recreational vehicle 406 393 18 400 6 5 Other — — — — — — Total consumer loans 5,061 4,965 338 5,157 76 62 Total 18,121 17,429 1,821 17,894 259 195 Total impaired loans $ 31,856 $ 25,081 $ 1,821 $ 25,669 $ 292 $ 217 The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2018: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With no specific allowance recorded Commercial loans Multifamily $ 443 $ 170 $ — Nonresidential 588 130 — Land — — — Construction 2,447 — — Secured 806 — — Unsecured 474 — — Total commercial loans 4,758 300 — Residential mortgage loans One-to four-family 5,840 4,908 — Construction — — — Total residential mortgage loans 5,840 4,908 — Consumer loans Home equity 1,084 957 — Auto 25 17 — Marine 502 145 — Recreational vehicle 592 172 — Other — — — Total consumer loans 2,203 1,291 — Total $ 12,801 $ 6,499 $ — With a specific allowance recorded Commercial loans Multifamily $ — $ — $ — Nonresidential 1,186 1,186 12 Land — — — Construction — — — Secured 989 531 91 Unsecured — — — Total commercial loans 2,175 1,717 103 Residential mortgage loans One-to four-family 8,298 8,178 798 Construction — — — Total residential mortgage loans 8,298 8,178 798 Consumer loans Home equity 3,925 3,842 283 Auto — — — Marine 91 91 1 Recreational vehicle 279 267 16 Other — — — Total consumer loans 4,295 4,200 300 Total 14,768 14,095 1,201 Total impaired loans $ 27,569 $ 20,594 $ 1,201 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 March 31, 2019 and December 31, 2018, but legal title, deed in lieu of foreclosure or similar legal agreement to the property has not yet been obtained: March 31, 2019 December 31, 2018 Unpaid Principal Balance Recorded Investment Unpaid Principal Balance Recorded Investment (Dollars in thousands) (Dollars in thousands) Mortgage loans in process of foreclosure $ 3,255 $ 3,010 $ 3,687 $ 3,636 Consumer loans in process of foreclosure 493 485 700 685 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 March 31, 2019: Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing As of March 31, 2019 Nonaccrual Loans past due over 90 days and still accruing (Dollars in thousands) Commercial loans Multifamily $ — $ — Nonresidential 1,565 — Land — — Construction — — Secured 456 — Unsecured — — Total commercial loans 2,021 — Residential mortgage loans One-to four-family 3,883 — Construction — — Total residential mortgage loans 3,883 — Consumer Loans Home equity 899 — Auto 133 — Marine 105 — Recreational vehicle 46 — Other 20 — Total consumer loans 1,203 — Total nonaccrual loans and loans past due over 90 days and still accruing $ 7,107 $ — 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, 2018: Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing As of December 31, 2018 Nonaccrual Loans past due over 90 days and still accruing (Dollars in thousands) Commercial loans Multifamily $ 171 $ — Nonresidential 13 — Land — — Construction — — Secured 531 — Unsecured — — Total commercial loans 715 — Residential mortgage loans One-to four-family 4,170 — Construction — — Total residential mortgage loans 4,170 — Consumer Loans Home equity 1,223 — Auto 131 — Marine 145 — Recreational vehicle 145 — Other 10 — Total consumer loans 1,654 — Total nonaccrual loans and loans past due over 90 days and still accruing $ 6,539 $ — The following table presents an age analysis of past-due loans, segregated by class of loans as of March 31, 2019: 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 $ — $ — $ — $ — $ 163,243 $ 163,243 Nonresidential 106 — — 106 412,444 412,550 Land 40 — — 40 17,050 17,090 Construction — — — — 135,048 135,048 Secured 205 — 142 347 240,029 240,376 Unsecured — — — — 6,364 6,364 Total commercial loans 351 — 142 493 974,178 974,671 Residential mortgage loans One-to four-family 1,027 1,563 3,136 5,726 928,860 934,586 Construction — — — — 45,102 45,102 Total residential mortgage loans 1,027 1,563 3,136 5,726 973,962 979,688 Consumer Loans: Home equity 673 324 769 1,766 182,190 183,956 Automobile 158 54 133 345 77,576 77,921 Marine — — 105 105 1,026 1,131 Recreational vehicle 170 345 46 561 3,166 3,727 Other 7 17 20 44 8,219 8,263 Total consumer loans 1,008 740 1,073 2,821 272,177 274,998 Total loans $ 2,386 $ 2,303 $ 4,351 $ 9,040 $ 2,220,317 $ 2,229,357 The following table presents an age analysis of past-due loans, segregated by class of loans as of December 31, 2018: 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 $ — $ — $ 171 $ 171 $ 133,972 $ 134,143 Nonresidential — — — — 409,979 409,979 Land — — — — 16,830 16,830 Construction — — — — 141,686 141,686 Secured 195 — 531 726 232,580 233,306 Unsecured — — — — 6,987 6,987 Total commercial loans 195 — 702 897 942,034 942,931 Residential mortgage loans One-to four-family 2,139 882 3,470 6,491 920,764 927,255 Construction — — — — 43,435 43,435 Total residential mortgage loans 2,139 882 3,470 6,491 964,199 970,690 Consumer Loans: Home equity 658 295 1,147 2,100 183,561 185,661 Automobile 283 112 131 526 78,160 78,686 Marine — — 145 145 1,061 1,206 Recreational vehicle 548 — 145 693 3,654 4,347 Other 33 — 10 43 7,098 7,141 Total consumer loans 1,522 407 1,578 3,507 273,534 277,041 Total loans $ 3,856 $ 1,289 $ 5,750 $ 10,895 $ 2,179,767 $ 2,190,662 As of March 31, 2019 and December 31, 2018, the Company has a recorded investment in troubled debt restructurings of $16.6 million and $16.6 million, respectively. The Company allocated $1.1 million of specific allowance for those loans at March 31, 2019 and $1.1 million at December 31, 2018. The Company has committed to lend, to existing troubled debt restructuring relationships, additional amounts totaling up to $43,000 and $41,000 at March 31, 2019 and December 31, 2018, respectively. The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2019: 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 1 335 355 Construction — — — Total residential mortgage loans 1 335 355 Consumer loans Home equity — — — Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans — — — Total restructured loans 1 $ 335 $ 355 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 March 31, 2019. The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2018: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — $ — Nonresidential 1 124 124 Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans 1 124 124 Residential mortgage loans One-to four-family — — — Construction — — — Total residential mortgage loans — — — Consumer loans Home equity — — — Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans — — — Total restructured loans 1 $ 124 $ 124 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 March 31, 2018. March 31, 2019 There were no loans modified as troubled debt restructurings for which there was a payment default within a twelve-month cycle following the modification during the period ended March 31, 2019. 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 March 31, 2018: 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 1 148 Construction — — Total residential mortgage loans 1 148 Consumer loans Home equity — — Auto — — Marine — — Recreational vehicle — — Other — — Total consumer loans — — Total restructured loans 1 $ 148 The troubled debt restructurings that subsequently defaulted described above resulted in no charge-offs during the three months ended March 31, 2018, 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 March 31, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: March 31, 2019 (Dollars in thousands) Unclassified Classified Unclassified Special Mention Substandard Doubtful Loss Total Classified Total Loans Commercial Loans Multifamily $ 162,152 $ — $ 1,091 $ — $ — $ 1,091 $ 163,243 Nonresidential 380,753 20,337 11,460 — — 11,460 412,550 Land 17,090 — — — — — 17,090 Construction 132,709 2,339 — — — — 135,048 Secured 223,544 2,138 14,694 — — 14,694 240,376 Unsecured 6,272 — 92 — — 92 6,364 Total commercial loans 922,520 24,814 27,337 — — 27,337 974,671 Residential mortgage loans One-to four-family 929,154 97 5,335 — — 5,335 934,586 Construction 45,102 — — — — — 45,102 Total residential mortgage loans 974,256 97 5,335 — — 5,335 979,688 Consumer Loans Home equity 183,058 — 898 — — 898 183,956 Auto 77,788 — 133 — — 133 77,921 Marine 1,026 — 105 — — 105 1,131 Recreational vehicle 3,681 — 46 — — 46 3,727 Other 8,243 — 20 — — 20 8,263 Total consumer loans 273,796 — 1,202 — — 1,202 274,998 Total loans $ 2,170,572 $ 24,911 $ 33,874 $ — $ — $ 33,874 $ 2,229,357 December 31, 2018 (Dollars in thousands) Unclassified Classified Unclassified Special Mention Substandard Doubtful Loss Total Classified Total Loans Commercial Loans Multifamily $ 133,972 $ — $ 171 $ — $ — $ 171 $ 134,143 Nonresidential 378,160 18,420 13,399 — — 13,399 409,979 Land 16,830 — — — — — 16,830 Construction 139,540 2,146 — — — — 141,686 Secured 214,924 2,184 16,198 — — 16,198 233,306 Unsecured 6,894 — 93 — — 93 6,987 Total commercial loans 890,320 22,750 29,861 — — 29,861 942,931 Residential mortgage loans One-to four-family 921,694 591 4,970 — — 4,970 927,255 Construction 43,435 — — — — — 43,435 Total residential mortgage loans 965,129 591 4,970 — — 4,970 970,690 Consumer Loans Home equity 184,438 — 1,223 — — 1,223 185,661 Auto 78,551 — 135 — — 135 78,686 Marine 1,061 — 145 — — 145 1,206 Recreational vehicle 4,221 — 126 — — 126 4,347 Other 7,131 — 10 — — 10 7,141 Total consumer loans 275,402 — 1,639 — — 1,639 277,041 Total loans $ 2,130,851 $ 23,341 $ 36,470 $ — $ — $ 36,470 $ 2,190,662 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. As of March 31, 2019 and December 31, 2018 there were no outstanding purchase credit impaired loans. Accretable yield, or income expected to be collected, is as follows: Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 (Dollars in thousands) Beginning of period $ — $ 110 New loans purchased — — Principal payments received — — Disposals — — Balance at end of period $ — $ 110 For the purchased credit impaired loans disclosed above, there was no change in the allowance for loan losses for the three months ended March 31, 2019 and 2018. 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: March 31, 2019 March 31, 2018 (Dollars in thousands) Loans at beginning of period $ — $ 1,194 Loans purchased during the period — — Loans at end of period — 1,184 |