Loans and Credit Quality

The following table presents total portfolio loans by portfolio segment and class of financing receivable, based on the Company's 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
March 31, 2018
AQR Pass		$278,743		$30,310		$54,947		$125,930		$328,144		$55,081		$21,227		$19,914		$914,296
AQR Special Mention	6,101		—		—		2,052		11,000		1,213		138		20		20,524
AQR Substandard	31,168		—		—		4,607		477		—		531		11		36,794
AQR Doubtful	69		—		—		—		—		—		—		—		69
Subtotal		$316,081		$30,310		$54,947		$132,589		$339,621		$56,294		$21,896		$19,945		$971,683
Less: Unearned origination fees, net of origination costs																	(4,108		)
Total loans																		$967,575
December 31, 2017
AQR Pass		$277,371		$31,201		$80,093		$127,059		$307,780		$39,777		$21,846		$19,895		$905,022
AQR Special Mention	4,921		—		—		2,095		11,051		634		3		22		18,726
AQR Substandard	31,222		—		—		2,888		482		—		767		2		35,361
Subtotal		$313,514		$31,201		$80,093		$132,042		$319,313		$40,411		$22,616		$19,919		$959,109
Less: Unearned origination fees, net of origination costs																	(4,156		)
Total loans																		$954,953

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 $18.5 million and $21.2 million at March 31, 2018 and December 31, 2017, respectively. Nonaccrual loans at the periods indicated are presented below by segment:



(In Thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due			Current			Total
March 31, 2018
Commercial		$15		$—		$1,933			$15,320			$17,268
Real estate term owner occupied	—		—		1,331			—			1,331
Consumer secured by 1st deeds of trust	—		—		285			—			285
Consumer other	—		—		11			—			11
Total nonperforming loans	15		—		3,560			15,320			18,895
Government guarantees on nonaccrual loans	—		—		(73		)	(339		)	(412		)
Net nonaccrual loans		$15		$—		$3,487			$14,981			$18,483
December 31, 2017
Commercial		$810		$—		$2,652			$16,455			$19,917
Real estate term owner occupied	—		—		—			1,331			1,331
Consumer secured by 1st deeds of trust	—		—		378			—			378
Total nonperforming loans	810		—		3,030			17,786			21,626
Government guarantees on nonaccrual loans	—		—		(94		)	(373		)	(467		)
Net nonaccrual loans		$810		$—		$2,936			$17,413			$21,159

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
March 31, 2018
Commercial		$5,506		$223		$—		$5,729		$17,268		$293,084		$316,081
Real estate construction one-to-four family	—		—		—		—		—		30,310		30,310
Real estate construction other	—		—		—		—		—		54,947		54,947
Real estate term owner occupied	1,914		—		—		1,914		1,331		129,344		132,589
Real estate term non-owner occupied	645		—		—		645		—		338,976		339,621
Real estate term other	—		—		—		—		—		56,294		56,294
Consumer secured by 1st deed of trust	468		—		—		468		285		21,143		21,896
Consumer other	64		64		84		212		11		19,722		19,945
Subtotal		$8,597		$287		$84		$8,968		$18,895		$943,820		$971,683
Less: Unearned origination fees, net of origination costs													(4,108		)
Total														$967,575
December 31, 2017
Commercial		$503		$—		$240		$743		$19,917		$292,854		$313,514
Real estate construction one-to-four family	—		—		—		—		—		31,201		31,201
Real estate construction other	90		—		—		90		—		80,003		80,093
Real estate term owner occupied	966		—		—		966		1,331		129,745		132,042
Real estate term non-owner occupied	—		—		—		—		—		319,313		319,313
Real estate term other	—		—		—		—		—		40,411		40,411
Consumer secured by 1st deed of trust	363		—		—		363		378		21,875		22,616
Consumer other	161		53		12		226		—		19,693		19,919
Subtotal		$2,083		$53		$252		$2,388		$21,626		$935,095		$959,109
Less: Unearned origination fees, net of origination costs													(4,156		)
Total														$954,953

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 with an outstanding balance of $50,000 or greater 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 March 31, 2018 and December 31, 2017, the recorded investment in loans that are considered to be impaired was $33.2 million and $32.0 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
March 31, 2018
With no related allowance recorded
Commercial - AQR special mention		$2,233		$2,233		$—
Commercial - AQR substandard	17,271		19,306		—
Real estate term owner occupied- AQR substandard	4,584		4,584		—
Real estate term non-owner occupied- AQR pass	295		295		—
Real estate term non-owner occupied- AQR special mention	89		89		—
Real estate term non-owner occupied- AQR substandard	477		477		—
Real estate term other - AQR pass	541		541		—
Consumer secured by 1st deeds of trust - AQR pass	135		135		—
Consumer secured by 1st deeds of trust - AQR substandard	246		246		—
Subtotal		$25,871		$27,906		$—



With an allowance recorded
Commercial - AQR substandard		$7,073		$7,073		$316
Commercial - AQR doubtful	54		54		54
Consumer secured by 1st deeds of trust - AQR substandard	241		294		2
Subtotal		$7,368		$7,421		$372



Total
Commercial - AQR special mention		$2,233		$2,233		$—
Commercial - AQR substandard	24,344		26,379		316
Commercial - AQR doubtful	54		54		54
Real estate term owner-occupied - AQR substandard	4,584		4,584		—
Real estate term non-owner occupied - AQR pass	295		295		—
Real estate term non-owner occupied - AQR special mention	89		89		—
Real estate term non-owner occupied - AQR substandard	477		477		—
Real estate term other - AQR pass	541		541		—
Consumer secured by 1st deeds of trust - AQR pass	135		135		—
Consumer secured by 1st deeds of trust - AQR substandard	487		540		2
Total		$33,239		$35,327		$372



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2017
With no related allowance recorded
Commercial - AQR special mention		$2,153		$2,153		$—
Commercial - AQR substandard	16,671		17,742		—
Real estate term owner occupied - AQR substandard	2,862		2,862		—
Real estate term non-owner occupied - AQR pass	303		303		—
Real estate term non-owner occupied - AQR special mention	89		89		—
Real estate term non-owner occupied - AQR substandard	482		482		—
Real estate term other - AQR pass	559		559		—
Consumer secured by 1st deeds of trust - AQR pass	136		136		—
Consumer secured by 1st deeds of trust - AQR substandard	724		809		—
Subtotal		$23,979		$25,135		$—



With an allowance recorded
Commercial - AQR substandard	$7,988	$7,988	$966
Subtotal	$7,988	$7,988	$966



Total
Commercial - AQR special mention		$2,153		$2,153		$—
Commercial - AQR substandard	24,659		25,730		966
Real estate term owner occupied - AQR substandard	2,862		2,862		—
Real estate term non-owner occupied - AQR pass	303		303		—
Real estate term non-owner occupied - AQR special mention	89		89		—
Real estate term non-owner occupied - AQR substandard	482		482		—
Real estate term other - AQR pass	559		559		—
Consumer secured by 1st deeds of trust - AQR pass	136		136		—
Consumer secured by 1st deeds of trust - AQR substandard	724		809		—
Total		$31,967		$33,123		$966

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 month periods ended March 31, 2018 and 2017:



Three Months Ended March 31,	2018						2017
(In Thousands)	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
With no related allowance recorded
Commercial - AQR special mention		$2,242			$31			$52			$1
Commercial - AQR substandard	18,549			85			17,544			76
Real estate term owner occupied- AQR pass	—			—			250			5
Real estate term owner occupied- AQR substandard	4,592			24			5,325			84
Real estate term non-owner occupied- AQR pass	299			5			384			14
Real estate term non-owner occupied- AQR substandard	480			7			696			20
Real estate term other - AQR pass	550			10			624			11
Real estate term other - AQR substandard	—			—			663			11
Consumer secured by 1st deeds of trust - AQR special mention	—			—			142			3
Consumer secured by 1st deeds of trust - AQR substandard	248			4			455			3
Consumer other - AQR substandard	—			—			52			1
Subtotal		$27,185			$171			$26,187			$229



With an allowance recorded
Commercial - AQR substandard		$7,205		$—		$11,285		$—
Commercial - AQR doubtful	55		—		—		—
Consumer secured by 1st deeds of trust - AQR substandard	242		—		—		—
Subtotal		$7,502		$—		$11,285		$—



Total
Commercial - AQR special mention		$2,242		$31		$52		$1
Commercial - AQR substandard	25,754		85		28,829		76
Real estate construction one-to-four family - AQR substandard	—		—		—		—
Real estate construction other - AQR substandard	—		—		—		—
Real estate term owner-occupied - AQR pass	—		—		250		5
Real estate term owner-occupied - AQR substandard	4,592		24		5,325		84
Real estate term non-owner occupied - AQR pass	299		5		384		14
Real estate term non-owner occupied - AQR substandard	480		7		696		20
Real estate term other - AQR pass	550		10		624		11
Real estate term other - AQR substandard	—		—		663		11
Consumer secured by 1st deeds of trust - AQR special mention	—		—		142		3
Consumer secured by 1st deeds of trust - AQR substandard	490		4		455		3
Total Impaired Loans		$34,687		$171		$37,472		$229

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 yield 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 March 31, 2018 was $895,000.

Troubled Debt Restructurings: Loans classified as troubled debt restructurings (“TDR”) totaled $25.5 million and $23.8 million at March 31, 2018 and December 31, 2017, 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 following table presents the breakout between newly restructured loans that occurred during the three months ended March 31, 2018 and restructured loans that occurred prior to 2018 that are still included in portfolio loans:



	Accrual Status		Nonaccrual Status		Total Modifications
(In Thousands)	Accrual Status		Nonaccrual Status		Total Modifications
New Troubled Debt Restructurings
Commercial - AQR substandard		$1,179		$559		$1,738
Real estate term owner occupied- AQR substandard	363		1,331		1,694
Subtotal		$1,542		$1,890		$3,432
Existing Troubled Debt Restructurings		$7,620		$14,476		$22,096
Total		$9,162		$16,366		$25,528

The following table presents newly restructured loans that occurred during the three months ended March 31, 2018, by concession (terms modified):



		March 31, 2018
	Number of Contracts	Rate Modification		Term Modification		Payment Modification		Combination Modification		Total Modifications
(In Thousands)	Number of Contracts	Rate Modification		Term Modification		Payment Modification		Combination Modification		Total Modifications
Pre-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	4		$—		$—		$2,704		$—		$2,704
Real estate term owner occupied- AQR substandard	2	—		—		1,694		—		1,694
Total	6		$—		$—		$4,398		$—		$4,398
Post-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	4		$—		$—		$1,738		$—		$1,738
Real estate term owner occupied- AQR substandard	2	—		—		1,694		—		1,694
Total	6		$—		$—		$3,432		$—		$3,432

The Company had no commitments to extend additional credit to borrowers whose terms have been modified in TDRs. There were $965,000 charge offs in the three months ended March 31, 2018 on loans that were newly classified as TDRs during the same period.

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 two TDRs with specific impairment at March 31, 2018 and December 31, 2017.

The Company had no TDRs that subsequently defaulted within the first twelve months of restructure, during the periods ending March 31, 2018 or December 31, 2017.