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Loans and Credit Quality
9 Months Ended
Sep. 30, 2018
Receivables [Abstract]  
Loans and Credit Quality
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
September 30, 2018
 

 

 

 

 

 

 

 

 
AQR Pass

$301,757



$36,119



$61,857



$120,902



$322,051



$40,889



$19,525



$22,495



$925,595

AQR Special Mention
6,279


—


—


4,484


18,300


—


199


16


29,278

AQR Substandard
25,096


—


—


4,780


469


577


478


62


31,462

AQR Doubtful
—


—


—


—


—


27


—


—


27

Subtotal

$333,132



$36,119



$61,857



$130,166



$340,820



$41,493



$20,202



$22,573



$986,362

Less: Unearned origination fees, net of origination costs

 

 

(4,355
)
        Total loans
 

 

 

 

 

 

 

 


$982,007

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 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 $16.4 million and $21.2 million at September 30, 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
September 30, 2018
 
 
 
 
 
 
 
 
 
Commercial

$121

 

$600

 

$2,742

 

$11,271

 

$14,734

Real estate term owner occupied
—

 
—

 
1,694

 
—

 
1,694

Real estate term other
—

 
—

 
26

 
—

 
26

Consumer secured by 1st deeds of trust
—

 
—

 
226

 
—

 
226

Consumer other
—

 
—

 
40

 
8

 
48

Total nonperforming loans
121

 
600

 
4,728

 
11,279

 
16,728

Government guarantees on nonaccrual loans
—

 
—

 
(62
)
 
(217
)
 
(279
)
Net nonaccrual loans

$121

 

$600

 

$4,666

 

$11,062

 

$16,449

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
September 30, 2018
 

 

 

 
 
 

 

 
Commercial

$1,098

 

$—

 

$—

 

$1,098

 

$14,734

 

$317,300

 

$333,132

Real estate construction one-to-four family
—

 
—

 
—

 
—

 
—

 
36,119

 
36,119

Real estate construction other
—

 
—

 
—

 
—

 
—

 
61,857

 
61,857

Real estate term owner occupied
211

 
738

 
—

 
949

 
1,694

 
127,523

 
130,166

Real estate term non-owner occupied
—

 
—

 
—

 
—

 
—

 
340,820

 
340,820

Real estate term other
—

 
577

 
—

 
577

 
26

 
40,890

 
41,493

Consumer secured by 1st deed of trust
—

 
—

 
152

 
152

 
226

 
19,824

 
20,202

Consumer other
22

 
10

 
—

 
32

 
48

 
22,493

 
22,573

Subtotal

$1,331

 

$1,325

 

$152

 

$2,808

 

$16,728

 

$966,826

 

$986,362

Less: Unearned origination fees,  net of origination costs

 

 
 

 


(4,355
)
     Total
 


 


 


 

 
 


 



$982,007

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 September 30, 2018 and December 31, 2017, the recorded investment in loans that are considered to be impaired was $35.4 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
September 30, 2018
 

 

 
With no related allowance recorded
 

 

 
Commercial - AQR special mention

$2,105



$2,105



$—

Commercial - AQR substandard
23,608


25,148


—

Real estate term owner occupied- AQR special mention
1,008


1,008


—

Real estate term owner occupied- AQR substandard
4,781


4,781


—

Real estate term non-owner occupied- AQR pass
319


319


—

Real estate term non-owner occupied- AQR substandard
469


469


—

Real estate term other - AQR pass
504


504


—

Real estate term other - AQR substandard
577


577


—

Consumer secured by 1st deeds of trust - AQR pass
131

 
131

 
—

Consumer secured by 1st deeds of trust - AQR substandard
252


252


—

          Subtotal

$33,754



$35,294



$—

With an allowance recorded
 

 

 
Commercial - AQR substandard

$1,454



$1,958



$323

Consumer secured by 1st deeds of trust - AQR substandard
226


226


49

  Subtotal

$1,680



$2,184



$372

Total
 
 
 
 
 
Commercial - AQR special mention

$2,105



$2,105



$—

Commercial - AQR substandard
25,062


27,106


323

Real estate term owner-occupied - AQR special mention
1,008


1,008


—

Real estate term owner-occupied - AQR substandard
4,781


4,781


—

Real estate term non-owner occupied - AQR pass
319


319


—

Real estate term non-owner occupied - AQR substandard
469


469


—

Real estate term other - AQR pass
504


504


—

Real estate term other - AQR substandard
577


577


—

Consumer secured by 1st deeds of trust - AQR pass
131

 
131

 
—

Consumer secured by 1st deeds of trust - AQR substandard
478


478


49

  Total

$35,434



$37,478



$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 and nine-month periods ended September 30, 2018 and 2017:
Three Months Ended September 30,
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

$2,113



$31



$97



$—

     Commercial - AQR substandard
26,518


43


18,125


72

     Real estate term owner occupied- AQR special mention
617


—


—


—

     Real estate term owner occupied- AQR substandard
2,908


52


7,345


114

     Real estate term non-owner occupied- AQR pass
206


7


346


6

     Real estate term non-owner occupied- AQR substandard
287


8


580


9

     Real estate term other - AQR pass
310


11


585


10

     Real estate term other - AQR substandard
353


—


641


11

     Consumer secured by 1st deeds of trust - AQR pass
132


2


—


—

     Consumer secured by 1st deeds of trust - AQR special mention
—


—


139


3

     Consumer secured by 1st deeds of trust - AQR substandard
154


2


771


5

         Subtotal

$33,598



$156



$28,629



$230

With an allowance recorded







     Commercial - AQR special mention

$—



$—



$2,083



$3

     Commercial - AQR substandard
1,081


10


10,056


4

     Consumer secured by 1st deeds of trust - AQR substandard
136


—


—


—

         Subtotal

$1,217



$10



$12,139



$7

Total





 

     Commercial - AQR special mention

$2,113



$31



$2,180

 

$3

     Commercial - AQR substandard
27,599


53


28,181

 
76

     Real estate term owner-occupied - AQR special mention
617


—


—

 
—

     Real estate term owner-occupied - AQR substandard
2,908


52


7,345

 
114

     Real estate term non-owner occupied - AQR pass
206


7


346

 
6

     Real estate term non-owner occupied - AQR substandard
287


8


580

 
9

     Real estate term other - AQR pass
310


11


585

 
10

     Real estate term other - AQR substandard
353


—


641

 
11

     Consumer secured by 1st deeds of trust - AQR pass
132


2


—

 
—

     Consumer secured by 1st deeds of trust - AQR special mention
—


—


139

 
3

     Consumer secured by 1st deeds of trust - AQR substandard
290


2


771

 
5

         Total Impaired Loans

$34,815



$166



$40,768

 

$237


Nine Months Ended September 30,
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

$2,192



$96



$49



$1

     Commercial - AQR substandard
25,271


300


20,363


405

     Real estate term owner occupied- AQR pass
—


—


82


5

     Real estate term owner occupied- AQR special mention
208


—


—


—

     Real estate term owner occupied- AQR substandard
4,019


129


6,257


260

     Real estate term non-owner occupied- AQR pass
294


18


367


38

     Real estate term non-owner occupied- AQR special mention
29


2


—


—

     Real estate term non-owner occupied- AQR substandard
413


22


654


38

     Real estate term other - AQR pass
462


28


604


32

     Real estate term other - AQR substandard
119


—


652


34

     Consumer secured by 1st deeds of trust - AQR pass
136


10


—


—

     Consumer secured by 1st deeds of trust - AQR special mention
—


—


141


10

     Consumer secured by 1st deeds of trust - AQR substandard
168


8


506


13

     Consumer other - AQR substandard
—


—


17


1

         Subtotal

$33,311



$613



$29,692



$837

With an allowance recorded







     Commercial - AQR special mention

$—

 

$—

 

$702

 

$3

     Commercial - AQR substandard
2,866

 
17

 
7,979

 
4

     Commercial - AQR doubtful
18

 
—

 
—

 
—

     Consumer secured by 1st deeds of trust - AQR substandard
126

 
—

 
—

 
—

         Subtotal

$3,010

 

$17

 

$8,681

 

$7

Total





 

     Commercial - AQR special mention

$2,192

 

$96

 

$751

 

$4

     Commercial - AQR substandard
28,137

 
317

 
28,342

 
409

     Commercial - AQR doubtful
18

 
—

 
—

 
—

     Real estate term owner-occupied - AQR pass
—

 
—

 
82

 
5

     Real estate term owner-occupied - AQR special mention
208

 
—

 
—

 
—

     Real estate term owner-occupied - AQR substandard
4,019

 
129

 
6,257

 
260

     Real estate term non-owner occupied - AQR pass
294

 
18

 
367

 
38

     Real estate term non-owner occupied - AQR special mention
29

 
2

 
—

 
—

     Real estate term non-owner occupied - AQR substandard
413

 
22

 
654

 
38

     Real estate term other - AQR pass
462

 
28

 
604

 
32

     Real estate term other - AQR substandard
119

 
—

 
652

 
34

     Consumer secured by 1st deeds of trust - AQR pass
136

 
10

 
—

 
—

     Consumer secured by 1st deeds of trust - AQR special mention
—

 
—

 
141

 
10

     Consumer secured by 1st deeds of trust - AQR substandard
294

 
8

 
506

 
13

     Consumer other - AQR substandard
—

 
—

 
17

 
1

         Total Impaired Loans

$36,321

 

$630

 

$38,373

 

$844


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 September 30, 2018 was $792,000.
Troubled Debt Restructurings: Loans classified as troubled debt restructurings (“TDR”) totaled $17.9 million and $23.8 million at September 30, 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 nine months ended September 30, 2018 and restructured loans that occurred prior to 2018 that are still included in portfolio loans:
 
Accrual Status
 
Nonaccrual Status
 
Total Modifications
(In Thousands)
 
 
New Troubled Debt Restructurings
 
 
 
 
 
Commercial - AQR substandard

$—

 

$1,738

 

$1,738

Real estate term owner occupied- AQR substandard
—

 
1,694

 
1,694

Subtotal

$—

 

$3,432

 

$3,432

Existing Troubled Debt Restructurings

$3,252

 

$11,178

 

$14,430

Total

$3,252

 

$14,610

 

$17,862


The following tables present newly restructured loans that occurred during the nine months ended September 30, 2018 and 2017, by concession (terms modified):
 
 
 
September 30, 2018
 
Number of Contracts
 
Rate Modification
 
Term Modification
 
Payment Modification
 
Combination Modification
 
Total Modifications
(In Thousands)
 
 
 
 
 
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

 
 
 
September 30, 2017
 
Number of Contracts
 
Rate Modification
 
Term Modification
 
Payment Modification
 
Combination Modification
 
Total Modifications
(In Thousands)
 
 
 
 
 
Pre-Modification Outstanding Recorded Investment:
 
 
 
 
 
 
 
 
 
 
 
Commercial - AQR special mention
1
 

$—

 

$2,078

 

$—

 

$—

 

$2,078

Commercial - AQR substandard
2
 
—

 
10,665

 
210

 
—

 
10,875

Total
3
 

$—

 

$12,743

 

$210

 

$—

 

$12,953

Post-Modification Outstanding Recorded Investment:
 
 
 
 
 
 
 
 
 
 
 
Commercial - AQR special mention
1
 

$—

 

$2,078

 

$—

 

$—

 

$2,078

Commercial - AQR substandard
2
 
—

 
9,099

 
205

 
—

 
9,304

Total
3
 

$—

 

$11,177

 

$205

 

$—

 

$11,382


The Company had no commitments to extend additional credit to borrowers whose terms have been modified in TDRs. There were $965,000 of charge-offs in the nine months ended September 30, 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 September 30, 2018 and December 31, 2017.
     The Company had no TDRs that subsequently defaulted within the first twelve months of restructure, during the year ending December 31, 2017. The following table presents TDRs that occurred during the twelve-month period ending September 30, 2018 that subsequently defaulted during the nine months ended September 30, 2018:

 
 
 
September 30, 2018
 
Number of Contracts
 
Recorded Investment
(In  Thousands)
 
Troubled Debt Restructurings that Subsequently Defaulted:
 
 
 
Commercial - AQR substandard
2
 

$559

Real estate term owner occupied - AQR substandard
1
 
1,331

Total
3
 

$1,890