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, 2019
AQR Pass		$377,537		$35,797		$61,446		$117,505		$314,525		$43,944		$15,607		$23,768		$990,129
AQR Special Mention	2,896		—		—		3,694		17,644		—		179		—		24,413
AQR Substandard	17,798		1,473		—		5,846		—		1,198		166		148		26,629
Subtotal		$398,231		$37,270		$61,446		$127,045		$332,169		$45,142		$15,952		$23,916		$1,041,171
Less: Unearned origination fees, net of origination costs																	(4,624		)
Total loans																		$1,036,547
December 31, 2018
AQR Pass		$315,112		$33,729		$72,256		$117,174		$307,126		$40,792		$18,768		$23,595		$928,552
AQR Special Mention	5,116		3,382		—		3,987		18,129		670		140		2		31,426
AQR Substandard	22,192		—		—		5,253		465		577		320		47		28,854
AQR Doubtful	—		—		—		—		—		—		—		1		1
Subtotal		$342,420		$37,111		$72,256		$126,414		$325,720		$42,039		$19,228		$23,645		$988,833
Less: Unearned origination fees, net of origination costs																	(4,487		)
Total loans																		$984,346

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 $15.5 million and $14.7 million at September 30, 2019 and December 31, 2018, 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, 2019
Commercial		$145			$169		$3,857			$6,697			$10,868
Real estate construction one-to-four family	—			1,473		—			—			1,473
Real estate term owner occupied	—			—		2,933			843			3,776
Real estate term other	—			—		1,198			—			1,198
Consumer other	—			—		93			34			127
Total nonperforming loans	145			1,642		8,081			7,574			17,442
Government guarantees on nonaccrual loans	(75		)	—		(102		)	(1,758		)	(1,935		)
Net nonaccrual loans		$70			$1,642		$7,979			$5,816			$15,507
December 31, 2018
Commercial		$1,329			$324		$1,287			$9,731			$12,671
Real estate term owner occupied	—			—		1,694			—			1,694
Real estate term other	—			—		577			—			577
Consumer secured by 1st deeds of trust	—			—		—			220			220
Consumer other	—			—		39			9			48
Total nonperforming loans	1,329			324		3,597			9,960			15,210
Government guarantees on nonaccrual loans	(269		)	—		—			(247		)	(516		)
Net nonaccrual loans		$1,060			$324		$3,597			$9,713			$14,694

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, 2019
Commercial		$237		$—		$—		$237		$10,868		$387,126		$398,231
Real estate construction one-to-four family	30		—		—		30		1,473		35,767		37,270
Real estate construction other	—		—		—		—		—		61,446		61,446
Real estate term owner occupied	987		—		—		987		3,776		122,282		127,045
Real estate term non-owner occupied	—		—		—		—		—		332,169		332,169
Real estate term other	—		—		—		—		1,198		43,944		45,142
Consumer secured by 1st deed of trust	—		—		—		—		—		15,952		15,952
Consumer other	7		—		—		7		127		23,782		23,916
Subtotal		$1,261		$—		$—		$1,261		$17,442		$1,022,468		$1,041,171
Less: Unearned origination fees, net of origination costs													(4,624		)
Total														$1,036,547
December 31, 2018
Commercial		$872		$857		$—		$1,729		$12,671		$328,020		$342,420
Real estate construction one-to-four family	—		—		—		—		—		37,111		37,111
Real estate construction other	—		—		—		—		—		72,256		72,256
Real estate term owner occupied	1,197		—		—		1,197		1,694		123,523		126,414
Real estate term non-owner occupied	—		—		—		—		—		325,720		325,720
Real estate term other	—		—		—		—		577		41,462		42,039
Consumer secured by 1st deed of trust	224		100		—		324		220		18,684		19,228
Consumer other	190		—		—		190		48		23,407		23,645
Subtotal		$2,483		$957		$—		$3,440		$15,210		$970,183		$988,833
Less: Unearned origination fees, net of origination costs													(4,487		)
Total														$984,346

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, 2019 and December 31, 2018, the recorded investment in loans that are considered to be impaired was $27.2 million and $31.7 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, 2019
With no related allowance recorded
Commercial - AQR substandard		$17,251		$18,158		$—
Real estate construction one-to-four family - AQR substandard	1,473		1,473		—
Real estate term owner occupied - AQR substandard	5,846		5,846		—
Real estate term non-owner occupied - AQR pass	214		214		—
Real estate term other - AQR pass	428		428		—
Real estate term other - AQR substandard	1,198		1,198		—
Consumer secured by 1st deeds of trust - AQR pass	124		124		—
Consumer secured by 1st deeds of trust - AQR substandard	92		92		—
Consumer other - AQR substandard	93		98		—
Subtotal		$26,719		$27,631		$—



With an allowance recorded
Commercial - AQR substandard		$389		$389		$97
Consumer secured by 1st deeds of trust - AQR substandard	74		74		5
Subtotal		$463		$463		$102



Total
Commercial - AQR substandard		$17,640		$18,547		$97
Real estate construction one-to-four family - AQR substandard	1,473		1,473		—
Real estate term owner-occupied - AQR substandard	5,846		5,846		—
Real estate term non-owner occupied - AQR pass	214		214		—
Real estate term other - AQR pass	428		428		—
Real estate term other - AQR substandard	1,198		1,198		—
Consumer secured by 1st deeds of trust - AQR pass	124		124		—
Consumer secured by 1st deeds of trust - AQR substandard	166		166		5
Consumer other - AQR substandard	93		98		—
Total		$27,182		$28,094		$102



(In Thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2018
With no related allowance recorded
Commercial - AQR pass		$80		$80		$—
Commercial - AQR special mention	2,009		2,009		—
Commercial - AQR substandard	21,252		22,303		—
Real estate term owner occupied - AQR substandard	5,253		5,253		—
Real estate term non-owner occupied - AQR pass	295		295		—
Real estate term non-owner occupied - AQR substandard	465		465		—
Real estate term other - AQR pass	486		486		—
Real estate term other - AQR substandard	577		577		—
Consumer secured by 1st deeds of trust - AQR pass	129		129		—
Consumer secured by 1st deeds of trust - AQR substandard	320		320		—
Subtotal		$30,866		$31,917		$—



With an allowance recorded
Commercial - AQR substandard	$848	$1,352	$14
Subtotal	$848	$1,352	$14



Total
Commercial - AQR pass		$80		$80		$—
Commercial - AQR special mention	2,009		2,009		—
Commercial - AQR substandard	22,100		23,655		14
Real estate term owner occupied - AQR substandard	5,253		5,253		—
Real estate term non-owner occupied - AQR pass	295		295		—
Real estate term non-owner occupied - AQR substandard	465		465		—
Real estate term other - AQR pass	486		486		—
Real estate term other - AQR special mention	577		577		—
Consumer secured by 1st deeds of trust - AQR pass	129		129		—
Consumer secured by 1st deeds of trust - AQR substandard	320		320		—
Total		$31,714		$33,269		$14

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, 2019 and 2018:



Three Months Ended September 30,	2019						2018
(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
Commercial - AQR substandard	17,616			107			26,518			43
Real estate construction one-to-four family - AQR substandard	1,482			—			—			—
Real estate term owner occupied- AQR special mention	—			—			617			—
Real estate term owner occupied- AQR substandard	5,896			34			2,908			52
Real estate term non-owner occupied- AQR pass	242			4			206			7
Real estate term non-owner occupied- AQR substandard	—			—			287			8
Real estate term other - AQR pass	438			8			310			11
Real estate term other - AQR substandard	1,198			—			353			—
Consumer secured by 1st deeds of trust - AQR pass	125			3			132			2
Consumer secured by 1st deeds of trust - AQR substandard	93			2			154			2
Consumer other - AQR substandard	93			—			—			—
Subtotal		$27,183			$158			$33,598			$156



With an allowance recorded
Commercial - AQR substandard		$391		$—		$1,081		$10
Consumer secured by 1st deeds of trust - AQR substandard	74		—		136		—
Subtotal		$465		$—		$1,217		$10



Total
Commercial - AQR special mention		$—		$—		$2,113		$31
Commercial - AQR substandard	18,007		107		27,599		53
Real estate construction one-to-four family - AQR substandard	1,482		—		—		—
Real estate term owner-occupied - AQR special mention	—		—		617		—
Real estate term owner-occupied - AQR substandard	5,896		34		2,908		52
Real estate term non-owner occupied - AQR pass	242		4		206		7
Real estate term non-owner occupied - AQR substandard	—		—		287		8
Real estate term other - AQR pass	438		8		310		11
Real estate term other - AQR substandard	1,198		—		353		—
Consumer secured by 1st deeds of trust - AQR pass	125		3		132		2
Consumer secured by 1st deeds of trust - AQR substandard	167		2		290		2
Consumer other - AQR substandard	93		—		—		—
Total Impaired Loans		$27,648		$158		$34,815		$166



Nine Months Ended September 30,	2019						2018
(In Thousands)	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
With no related allowance recorded
Commercial - AQR pass		$711			$35			$—			$—
Commercial - AQR special mention	—			—			2,192			96
Commercial - AQR substandard	17,205			292			25,271			300
Real estate construction one-to-four family - AQR substandard	2,109			—			—			—
Real estate term owner occupied- AQR special mention	—			—			208			—
Real estate term owner occupied- AQR substandard	5,896			83			4,019			129
Real estate term non-owner occupied- AQR pass	269			15			294			18
Real estate term non-owner occupied- AQR special mention	—			—			29			2
Real estate term non-owner occupied- AQR substandard	307			—			413			22
Real estate term other - AQR pass	457			24			462			28
Real estate term other - AQR substandard	998			—			119			—
Consumer secured by 1st deeds of trust - AQR pass	127			9			136			10
Consumer secured by 1st deeds of trust - AQR substandard	215			5			168			8
Consumer other - AQR substandard	63			—			—			—
Subtotal		$28,357			$463			$33,311			$613



With an allowance recorded
Commercial - AQR substandard		$715		$—		$2,866		$17
Commercial - AQR doubtful	—		—		18		—
Real estate term other - AQR substandard	218		—		—		—
Consumer secured by 1st deeds of trust - AQR substandard	97		—		126		—
Subtotal		$1,030		$—		$3,010		$17



Total
Commercial - AQR pass		$711		$35		$—		$—
Commercial - AQR special mention	—		—		2,192		96
Commercial - AQR substandard	17,920		292		28,137		317
Commercial - AQR doubtful	—		—		18		—
Real estate construction one-to-four family - AQR substandard	2,109		—		—		—
Real estate term owner-occupied - AQR special mention	—		—		208		—
Real estate term owner-occupied - AQR substandard	5,896		83		4,019		129
Real estate term non-owner occupied - AQR pass	269		15		294		18
Real estate term non-owner occupied - AQR special mention	—		—		29		2
Real estate term non-owner occupied - AQR substandard	307		—		413		22
Real estate term other - AQR pass	457		24		462		28
Real estate term other - AQR substandard	1,216		—		119		—
Consumer secured by 1st deeds of trust - AQR pass	127		9		136		10
Consumer secured by 1st deeds of trust - AQR substandard	312		5		294		8
Consumer other - AQR substandard	63		—		—		—
Total Impaired Loans		$29,387		$463		$36,321		$630

Troubled Debt Restructurings: Loans classified as troubled debt restructurings (“TDR”) totaled $10.2 million and $14.8 million at September 30, 2019 and December 31, 2018, 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, 2019 and restructured loans that occurred prior to 2019 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		$318		$1,447		$1,765
Real estate term owner occupied - AQR substandard	—		186		186
Subtotal		$318		$1,633		$1,951
Existing Troubled Debt Restructurings		$1,180		$7,089		$8,269
Total		$1,498		$8,722		$10,220

The following tables present newly restructured loans that occurred during the nine months ended September 30, 2019 and 2018, by concession (terms modified):



		September 30, 2019
	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	5		$—		$—		$509		$1,350		$1,859
Real estate term owner occupied- AQR substandard	1	—		—		192		—		192
Total	6		$—		$—		$701		$1,350		$2,051
Post-Modification Outstanding Recorded Investment:
Commercial - AQR substandard	5		$—		$—		$425		$1,340		$1,765
Real estate term owner occupied- AQR substandard	1	—		—		188		—		188
Total	6		$—		$—		$613		$1,340		$1,953



		September 30, 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 $64,000 in charge-offs in the nine months ended September 30, 2019 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 no TDRs with specific impairment at September 30, 2019 and one at December 31, 2018.

The following table presents TDRs that defaulted within twelve months of restructure and defaulted during the nine months ended September 30, 2019 and 2018:



		September 30, 2019			September 30, 2018
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
(In Thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
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