Loans and Credit Quality

The following table presents total portfolio loans by portfolio segment and class of financing receivable, based on our asset quality rating ("AQR") criteria:



(In Thousands)	Commercial		Real estate construction one-to-four family		Real estate construction other		Real estate term owner occupied		Real estate term non-owner occupied		Real estate term other		Consumer secured by 1st deeds of trust		Consumer other		Total
June 30, 2016
AQR Pass		$314,597		$34,811		$55,541		$135,670		$291,379		$38,793		$25,970		$27,036		$923,797
AQR Special Mention	3,109		—		—		1,256		—		285		152		6		4,808
AQR Substandard	19,648		3,972		1,912		16,338		221		—		909		61		43,061
Subtotal		$337,354		$38,783		$57,453		$153,264		$291,600		$39,078		$27,031		$27,103		$971,666
Less: Unearned origination fees, net of origination costs																	(4,320		)
Total loans																		$967,346
December 31, 2015
AQR Pass		$313,689		$44,488		$74,931		$112,248		$313,710		$37,938		$26,015		$28,882		$951,901
AQR Special Mention	536		—		—		—		—		91		171		10		808
AQR Substandard	15,309		—		—		16,515		359		—		487		20		32,690
Subtotal		$329,534		$44,488		$74,931		$128,763		$314,069		$38,029		$26,673		$28,912		$985,399
Less: Unearned origination fees, net of origination costs																	(4,612		)
Total loans																		$980,787

Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees and direct loan origination costs. Loan balances are charged-off to the allowance for loan losses ("Allowance") when management believes that collection of principal is unlikely. Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status. All classes of loans are placed on nonaccrual and considered impaired when management believes doubt exists as to the collectability of the interest or principal. Cash payments received on nonaccrual loans are directly applied to the principal balance. Generally, a loan may be returned to accrual status when the delinquent principal and interest is brought current in accordance with the terms of the loan agreement. Additionally, certain ongoing performance criteria, which generally includes a performance period of six months, must be met in order for a loan to be returned to accrual status. Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.

Nonaccrual loans: Nonaccrual loans net of government guarantees totaled $9.6 million and $2.1 million at June 30, 2016 and December 31, 2015, respectively. Nonaccrual loans at the periods indicated, by segment, are presented below:



(In Thousands)	June 30, 2016			December 31, 2015
Commercial		$4,479			$3,013
Real estate construction one-to-four family	3,972			—
Real estate construction other	1,912			—
Real estate term owner occupied	34			38
Real estate term non-owner occupied	221			359
Consumer secured by 1st deeds of trust	552			256
Consumer other	14			20
Total nonaccrual loans		$11,184			$3,686
Government guarantees on nonaccrual loans	(1,600		)	(1,561		)
Net nonaccrual loans		$9,584			$2,125

Past Due Loans: Past due loans and nonaccrual loans at the periods indicated are presented below by segment:



(In Thousands)	30-59 Days Past Due Still Accruing		60-89 Days Past Due Still Accruing		Greater Than 90 Days Still Accruing		Total Past Due		Nonaccrual		Current		Total
June 30, 2016
Commercial		$334		$137		$—		$471		$4,479		$332,404		$337,354
Real estate construction one-to-four family	—		—		—		—		3,972		34,811		38,783
Real estate construction other	—		—		—		—		1,912		55,541		57,453
Real estate term owner occupied	550		—		—		550		34		152,680		153,264
Real estate term non-owner occupied	—		—		—		—		221		291,379		291,600
Real estate term other	—		—		—		—		—		39,078		39,078
Consumer secured by 1st deed of trust	143		—		—		143		552		26,336		27,031
Consumer other	—		—		47		47		14		27,042		27,103
Subtotal		$1,027		$137		$47		$1,211		$11,184		$959,271		$971,666
													(4,320		)
Total														$967,346
December 31, 2015
Commercial		$242		$21		$—		$263		$3,013		$326,258		$329,534
Real estate construction one-to-four family	—		—		—		—		—		44,488		44,488
Real estate construction other	—		—		—		—		—		74,931		74,931
Real estate term owner occupied	—		—		—		—		38		128,725		128,763
Real estate term non-owner occupied	—		—		—		—		359		313,710		314,069
Real estate term other	289		—		—		289		—		37,740		38,029
Consumer secured by 1st deed of trust	568		—		—		568		256		25,849		26,673
Consumer other	30		—		—		30		20		28,862		28,912
Subtotal		$1,129		$21		$—		$1,150		$3,686		$980,563		$985,399
													(4,612		)
Total														$980,787

Impaired Loans: The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan’s collateral. Nonperforming loans greater than $50,000 are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors.

At June 30, 2016 and December 31, 2015, the recorded investment in loans that are considered to be impaired was $44.4 million and $34.6 million, respectively. The following table presents information about impaired loans by class as of the periods indicated:



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
June 30, 2016
With no related allowance recorded
Commercial - AQR special mention		$151		$151		$—
Commercial - AQR substandard	19,427		20,107		—
Real estate construction other - AQR substandard	1,912		1,912		—
Real estate term owner occupied- AQR pass	257		257		—
Real estate term owner occupied- AQR substandard	16,259		16,259		—
Real estate term non-owner occupied- AQR pass	457		457		—
Real estate term non-owner occupied- AQR substandard	216		216		—
Real estate term other - AQR pass	662		662		—
Real estate term other - AQR special mention	77		77		—
Consumer secured by 1st deeds of trust - AQR pass	74		74		—
Consumer secured by 1st deeds of trust - AQR substandard	509		509		—
Subtotal		$40,001		$40,681		$—



With an allowance recorded
Real estate construction one-to-four family - AQR substandard		$3,972		$3,972		$204
Consumer secured by 1st deeds of trust - AQR substandard	400		400		23
Subtotal		$4,372		$4,372		$227



Total
Commercial - AQR special mention		$151		$151		$—
Commercial - AQR substandard	19,427		20,107		—
Real estate construction one-to-four family - AQR substandard	3,972		3,972		204
Real estate construction other - AQR substandard	1,912		1,912		—
Real estate term owner-occupied - AQR pass	257		257		—
Real estate term owner-occupied - AQR substandard	16,259		16,259		—
Real estate term non-owner occupied - AQR pass	457		457		—
Real estate term non-owner occupied - AQR substandard	216		216		—
Real estate term other - AQR pass	662		662		—
Real estate term other - AQR special mention	77		77		—
Consumer secured by 1st deeds of trust - AQR pass	74		74		—
Consumer secured by 1st deeds of trust - AQR substandard	909		909		23
Total		$44,373		$45,053		$227



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2015
With no related allowance recorded
Commercial - AQR special mention		$157		$157		$—
Commercial - AQR substandard	14,030		14,443		—
Real estate term owner occupied - AQR pass	753		753		—
Real estate term owner occupied - AQR substandard	16,476		16,476		—
Real estate term non-owner occupied - AQR pass	473		473		—
Real estate term non-owner occupied - AQR substandard	352		352		—
Real estate term other - AQR pass	699		699		—
Real estate term other - AQR special mention	91		91
Consumer secured by 1st deeds of trust - AQR pass	76		76		—
Consumer secured by 1st deeds of trust - AQR substandard	472		472		—
Subtotal		$33,579		$33,992		$—



With an allowance recorded
Commercial - AQR substandard	$1,061	$1,061	$344
Subtotal	$1,061	$1,061	$344



Total
Commercial - AQR special mention		$157		$157		$—
Commercial - AQR substandard	15,091		15,504		344
Real estate term owner occupied - AQR pass	753		753		—
Real estate term owner occupied - AQR substandard	16,476		16,476		—
Real estate term non-owner occupied - AQR pass	473		473		—
Real estate term non-owner occupied - AQR substandard	352		352		—
Real estate term other - AQR pass	699		699		—
Real estate term other - AQR special mention	91		91		—
Consumer secured by 1st deeds of trust - AQR pass	76		76		—
Consumer secured by 1st deeds of trust - AQR substandard	472		472		—
Total		$34,640		$35,053		$344

The unpaid principal balance included in the tables above represents the recorded investment at the dates indicated, plus amounts charged off for book purposes.

The following tables summarize our average recorded investment and interest income recognized on impaired loans for the three and six month periods ended June 30, 2016 and 2015, respectively:



Three Months Ended June 30,	2016						2015
(In Thousands)	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
With no related allowance recorded
Commercial - AQR special mention		$152			$3			$164			$3
Commercial - AQR substandard	19,699			176			12,315			41
Real estate construction other - AQR pass	—			—			743			30
Real estate construction other - AQR substandard	1,912			—			—			—
Real estate term owner occupied- AQR pass	258			5			766			17
Real estate term owner occupied- AQR substandard	16,283			232			5,269			19
Real estate term non-owner occupied- AQR pass	462			18			541			19
Real estate term non-owner occupied- AQR special mention	—			—			2,079			44
Real estate term non-owner occupied- AQR substandard	222			—			1,652			—
Real estate term other - AQR pass	674			12			—			—
Real estate term other - AQR special mention	83			2			—			—
Real estate term other - AQR substandard	—			—			149			3
Consumer secured by 1st deeds of trust - AQR pass	75			1			80			1
Consumer secured by 1st deeds of trust - AQR substandard	486			5			444			4
Subtotal		$40,306			$454			$24,202			$181



With an allowance recorded
Commercial - AQR substandard		$—		$—		$2,414		$—
Real estate construction one-to-four family - AQR substandard	3,972		—		—		—
Consumer secured by 1st deeds of trust - AQR substandard	292		—		—		—
Subtotal		$4,264		$—		$2,414		$—



Total
Commercial - AQR special mention		$152		$3		$164		$3
Commercial - AQR substandard	19,699		176		14,729		41
Real estate construction one-to-four family - AQR substandard	3,972		—		—		—
Real estate construction other - AQR pass	—		—		743		30
Real estate construction other - AQR substandard	1,912		—		—		—
Real estate term owner-occupied - AQR pass	258		5		766		17
Real estate term owner-occupied - AQR substandard	16,283		232		5,269		19
Real estate term non-owner occupied - AQR pass	462		18		541		19
Real estate term non-owner occupied - AQR special mention	—		—		2,079		44
Real estate term non-owner occupied - AQR substandard	222		—		1,652		—
Real estate term other - AQR pass	674		12		—		—
Real estate term other - AQR special mention	83		2		—		—
Real estate term other - AQR substandard	—		—		149		3
Consumer secured by 1st deeds of trust - AQR pass	75		1		80		1
Consumer secured by 1st deeds of trust - AQR substandard	778		5		444		4
Total Impaired Loans		$44,570		$454		$26,616		$181



Six Months Ended June 30,	2016						2015
(In Thousands)	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
With no related allowance recorded
Commercial - AQR special mention		$154			$6			$166			$7
Commercial - AQR substandard	18,143			374			7,703			70
Real estate construction one-to-four family - AQR substandard	1,986			—			—			—
Real estate construction other - AQR pass	—			—			753			59
Real estate construction other - AQR substandard	1,912			—			—			—
Real estate term owner occupied- AQR pass	504			19			634			28
Real estate term owner occupied- AQR special mention	—			—			135			5
Real estate term owner occupied- AQR substandard	16,342			467			2,967			28
Real estate term non-owner occupied- AQR pass	466			37			544			38
Real estate term non-owner occupied- AQR special mention	—			—			2,127			88
Real estate term non-owner occupied- AQR substandard	230			—			2,009			—
Real estate term other - AQR pass	608			24			—			—
Real estate term other - AQR special mention	87			4			—			—
Real estate term other - AQR substandard	—			—			149			7
Consumer secured by 1st deeds of trust - AQR pass	75			2			81			2
Consumer secured by 1st deeds of trust - AQR substandard	476			8			560			4
Subtotal		$40,983			$941			$17,828			$336



With an allowance recorded
Commercial - AQR substandard		$297		$—		$2,330		$—
Real estate construction one-to-four family - AQR substandard	1,986		—		—		—
Real estate term other - AQR substandard	—		—		141		—
Consumer secured by 1st deeds of trust - AQR substandard	146		—		—		—
Subtotal		$2,429		$—		$2,471		$—



Total
Commercial - AQR special mention		$154		$6		$166		$7
Commercial - AQR substandard	18,440		374		10,033		70
Real estate construction one-to-four family - AQR substandard	3,972		—		—		—
Real estate construction other - AQR pass	—		—		753		59
Real estate construction other - AQR substandard	1,912		—		—		—
Real estate term owner-occupied - AQR pass	504		19		634		28
Real estate term owner-occupied - AQR special mention	—		—		135		5
Real estate term owner-occupied - AQR substandard	16,342		467		2,967		28
Real estate term non-owner occupied - AQR pass	466		37		544		38
Real estate term non-owner occupied - AQR special mention	—		—		2,127		88
Real estate term non-owner occupied - AQR substandard	230		—		2,009		—
Real estate term other - AQR pass	608		24		—		—
Real estate term other - AQR special mention	87		4		—		—
Real estate term other - AQR substandard	—		—		290		7
Consumer secured by 1st deeds of trust - AQR pass	75		2		81		2
Consumer secured by 1st deeds of trust - AQR substandard	622		8		560		4
Total Impaired Loans		$43,412		$941		$20,299		$336

Purchased Credit Impaired Loans: The Company acquired 18 purchased credit impaired loans in connection with its acquisition of Alaska Pacific Bancshares, Inc. on April 1, 2014 subject to the requirements of FASB ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality. This group of loans consists primarily of commercial and commercial real estate loans, and unlike a pool of consumer mortgages, it is not practicable for the Company to analyze the accretable yield of these loans. As such, the Company has elected the cost recovery method of income recognition for these loans, and thus no accretable difference has been identified for these loans. At the acquisition date, April 1, 2014, the fair value of this group of loans was $3.9 million. The carrying value of these loans as of June 30, 2016 is $1.4 million.

Troubled Debt Restructurings: Loans classified as troubled debt restructurings (“TDR”) totaled $12.5 million and $13.7 million at June 30, 2016 and December 31, 2015, respectively. A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession that it would not grant otherwise. The Company has granted a variety of concessions to borrowers in the form of loan modifications. The modifications granted can generally be described in the following categories:

Rate Modification: A modification in which the interest rate is changed.

Term Modification: A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Payment Modification: A modification in which the dollar amount of the payment is changed, or in which a loan is converted to interest only payments for a period of time is included in this category.

Combination Modification: Any other type of modification, including the use of multiple categories above.

AQR pass graded loans included above in the impaired loan data are loans classified as TDRs. By definition, TDRs are considered impaired loans. All of the Company's TDRs are included in impaired loans.

The Company had no newly restructured loans during the three and six month periods ended June 30, 2016.

The Company had no commitments to extend additional credit to borrowers whose terms have been modified in TDRs. There were no charge offs in the six months ended June 30, 2016 on loans that were later classified as TDRs.

All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the Allowance. There were no TDRs with specific impairment at June 30, 2016 and December 31, 2015, respectively.

The Company had no TDRs that subsequently defaulted within the first twelve months of restructure, during the periods ending June 30, 2016 and December 31, 2015, respectively.