Loans Receivable

Loans receivable are summarized as follows at the dates indicated:



	June 30, 2019		December 31, 2018
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	201,989	$	194,141
Permanent non-owner occupied	159,267		147,825
	361,256		341,966

Multifamily	161,460		169,355

Commercial real estate	384,202		373,798

Construction/land:
One-to-four family residential	45,953		51,747
Multifamily	37,032		40,502
Commercial	13,793		9,976
Land	8,356		6,629
	105,134		108,854

Business	36,358		30,486
Consumer	17,891		12,970
Total loans ⁽¹⁾	1,066,301		1,037,429

Less:
Deferred loan fees, net	568		1,178
Allowance for loan and lease losses ("ALLL")	13,057		13,347
Loans receivable, net	$	1,052,676	$	1,022,904

____________

⁽¹⁾ Net of loans in process (“LIP”).

At June 30, 2019, loans totaling $495.3 million were pledged to secure borrowings from the FHLB of Des Moines compared to $471.4 million at December 31, 2018. In addition, loans totaling $92.1 million and $91.2 million were pledged to the Federal Reserve Bank of San Francisco to secure a line of credit at June 30, 2019 and December 31, 2018, respectively.

Credit Quality Indicators. The Company assigns a risk rating to all credit exposures based on a risk rating system designed to define the basic characteristics and identified risk elements of each credit extension. The Company utilizes a nine‑point risk rating system. A description of the general characteristics of the risk grades is as follows:

•

Grades 1 through 5: These grades are considered to be “pass” credits. These include assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Bank. Pass credits also include credits that are on the Company’s watch list, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower’s financial capacity and threaten their ability to fulfill debt obligations in the future.

•

Grade 6: These credits, classified as “special mention”, possess weaknesses that deserve management’s close attention. Special mention assets do not expose the Company to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. If left uncorrected, these potential weaknesses may result in deterioration in the Company’s credit position at a future date.


•	Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well defined weaknesses which jeopardize the orderly liquidation of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.


•	Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.


•	Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near term recovery and no realistic strengthening action of significance is pending.

As of June 30, 2019, and December 31, 2018, the Company had no loans rated as doubtful or loss. The following tables represent a summary of loans at June 30, 2019, and December 31, 2018 by type and risk category:



	June 30, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Risk Rating:
Pass	$	360,005	$	159,340	$	383,669	$	92,563	$	36,358	$	17,848	$	1,049,783
Special mention	614		2,120		533		12,571		—		—		15,838
Substandard	637		—		—		—		—		43		680
Total loans	$	361,256	$	161,460	$	384,202	$	105,134	$	36,358	$	17,891	$	1,066,301

_______________

⁽¹⁾ Net of LIP.



	December 31, 2018
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Risk Rating:
Pass	$	339,310	$	169,355	$	372,690	$	108,854	$	30,486	$	12,926	$	1,033,621
Special mention	1,737		—		782		—		—		—		2,519
Substandard	919		—		326		—		—		44		1,289
Total loans	$	341,966	$	169,355	$	373,798	$	108,854	$	30,486	$	12,970	$	1,037,429

_______________

⁽¹⁾ Net of LIP.

ALLL. When the Company classifies problem assets as either substandard or doubtful, pursuant to Federal regulations, or identifies a loan where it is uncertain if the Bank will be able to collect all amounts due according to the contractual terms of the loan, it may establish a specific reserve in an amount deemed prudent to address the risk specifically. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to the particular problem assets. When an insured institution classifies problem assets as a loss, pursuant to Federal regulations, it is required to charge-off such assets in the period in which they are deemed uncollectible. The determination as to the classification of the Company’s assets and the amount of valuation allowances is subject to review by bank regulators, who can require the establishment of additional loss allowances.

Loan grades are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss. The grades for watch and special mention are assigned to loans which have been criticized based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan or stale financial information from the borrower and/or guarantors. Loans identified as criticized (watch and special mention) or classified (substandard, doubtful or loss) are subject to problem loan reporting every three months.

During the quarter ended June 30, 2019, an $11.6 million construction loan was classified as impaired as a result of defaulting on certain terms of the loan agreement. The loan is well collateralized and was current on its payments at June 30, 2019. The impairment analysis concluded the Bank does not anticipate incurring a loss on this loan, which contributed to a recapture of previously recognized provision for the general allowance on construction loans. In addition, certain loans transitioned from the construction phase to the permanent phase, which carries a lower risk of loss, and therefore reduced the required provision for loan losses.

The following tables summarize changes in the ALLL and loan portfolio by loan type and impairment method at the dates and for the periods shown:



	At or For the Three Months Ended June 30, 2019
	One-to-Four Family Residential			Multifamily			Commercial Real Estate			Construction/ Land			Business		Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	3,032		$	1,579		$	4,809		$	3,132		$	1,030	$	226	$	13,808
Charge-offs	—			—			—			—			—		—		—
Recoveries	4			45			—			—			—		—		49
Provision (recapture)	49			19			(202		)	(861		)	90		105		(800		)
Ending balance	$	3,085		$	1,643		$	4,607		$	2,271		$	1,120	$	331	$	13,057

	At or For the Six Months Ended June 30, 2019
	One-to-Four Family Residential			Multifamily			Commercial Real Estate			Construction/ Land			Business		Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	3,387		$	1,680		$	4,777		$	2,331		$	936	$	236	$	13,347
Charge-offs	—			—			—			—			—		—		—
Recoveries	28			45			—			—			—		37		110
(Recapture) provision	(330		)	(82		)	(170		)	(60		)	184		58		(400		)
Ending balance	$	3,085		$	1,643		$	4,607		$	2,271		$	1,120	$	331	$	13,057

ALLL by category:
General reserve	$	3,047		$	1,643		$	4,607		$	2,271		$	1,120	$	331	$	13,019
Specific reserve	38			—			—			—			—		—		38

Loans: ⁽¹⁾
Total loans	$	361,256		$	161,460		$	384,202		$	105,134		$	36,358	$	17,891	$	1,066,301
Loans collectively evaluated for impairment ⁽²⁾	356,558			161,460			382,061			93,551			36,358		17,848		1,047,836
Loans individually evaluated for impairment ⁽³⁾	4,698			—			2,141			11,583			—		43		18,465

____________

⁽¹⁾ Net of LIP.

⁽²⁾ Loans collectively evaluated for general reserves.

⁽³⁾ Loans individually evaluated for specific reserves.



	At or For the Three Months Ended June 30, 2018
	One-to-Four Family Residential			Multifamily		Commercial Real Estate		Construction/ Land			Business			Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	3,237		$	1,884	$	4,490	$	2,454		$	740		$	331		$	13,136
Charge-offs	—			—		—		—			—			—			—
Recoveries	6			—		—		12			—			—			18
Provision (recapture)	22			44		4		(345		)	(66		)	(59		)	(400		)
Ending balance	$	3,265		$	1,928	$	4,494	$	2,121		$	674		$	272		$	12,754

	At or For the Six Months Ended June 30, 2018
	One-to-Four Family Residential			Multifamily		Commercial Real Estate		Construction/ Land			Business			Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	2,837		$	1,820	$	4,418	$	2,816		$	694		$	297		$	12,882
Charge-offs	—			—		—		—			—			—			—
Recoveries	4,246			—		14		12			—			—			4,272
(Recapture) provision	(3,818		)	108		62		(707		)	(20		)	(25		)	(4,400		)
Ending balance	$	3,265		$	1,928	$	4,494	$	2,121		$	674		$	272		$	12,754

ALLL by category:
General reserve	$	3,191		$	1,928	$	4,484	$	2,121		$	674		$	272		$	12,670
Specific reserve	74			—		10		—			—			—			84

Loans: ⁽¹⁾
Total loans	$	303,572		$	194,853	$	371,690	$	98,224		$	22,121		$	12,329		$	1,002,789
Loans collectively evaluated for impairment ⁽²⁾	293,466			193,731		369,066		98,224			22,121			12,238			988,846
Loans individually evaluated for impairment ⁽³⁾	10,106			1,122		2,624		—			—			91			13,943

_____________

⁽¹⁾ Net of LIP.

⁽²⁾ Loans collectively evaluated for general reserves.

⁽³⁾ Loans individually evaluated for specific reserves.

Past Due Loans. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. At June 30, 2019, past due loans were 0.02% of total loans receivable, net of LIP. In comparison, past due loans were 0.08% of total loans receivable, net of LIP at December 31, 2018. The following tables represent a summary of the aging of loans by type at the dates indicated:



	Loans Past Due as of June 30, 2019
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ^{(1) (2)}
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	184	$	—	$	—	$	184	$	201,805	$	201,989
Non-owner occupied	—		—		—		—		159,267		159,267
Multifamily	—		—		—		—		161,460		161,460
Commercial real estate	—		—		—		—		384,202		384,202
Construction/land	—		—		—		—		105,134		105,134
Total real estate	184		—		—		184		1,011,868		1,012,052
Business	—		—		—		—		36,358		36,358
Consumer	43		—		—		43		17,848		17,891
Total loans	$	227	$	—	$	—	$	227	$	1,066,074	$	1,066,301

________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at June 30, 2019.

⁽²⁾ Net of LIP.



	Loans Past Due as of December 31, 2018
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ^{(1) (2)}
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	223	$	—	$	272	$	495	$	193,646	$	194,141
Non-owner occupied	—		—		—		—		147,825		147,825
Multifamily	—		—		—		—		169,355		169,355
Commercial real estate	—		—		326		326		373,472		373,798
Construction/land	—		—		—		—		108,854		108,854
Total real estate	223		—		598		821		993,152		993,973
Business	—		—		—		—		30,486		30,486
Consumer	—		—		—		—		12,970		12,970
Total loans	$	223	$	—	$	598	$	821	$	1,036,608	$	1,037,429

_________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at December 31, 2018.

⁽²⁾ Net of LIP.

Nonperforming Loans. When a loan becomes 90 days past due, the Bank generally places the loan on nonaccrual status. Loans may be placed on nonaccrual status prior to being 90 days past due if there is an identified problem that indicates the borrower is unable to meet their scheduled payment obligations. The following table is a summary of nonaccrual loans by loan type at the dates indicated:



	June 30, 2019		December 31, 2018
	(In thousands)
One-to-four family residential	$	103	$	382
Commercial real estate	—		326
Consumer	43		44
Total nonaccrual loans	$	146	$	752

During the three and six months ended June 30, 2019, interest income that would have been recognized had these nonaccrual loans been performing in accordance with their original terms was $2,000 and $9,000, respectively. For the three and six months ended June 30, 2018, foregone interest on nonaccrual loans was $3,000 and $7,000, respectively.

The following tables summarize the loan portfolio by type and payment status at the dates indicated:



	June 30, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total ⁽¹⁾
	(In thousands)
Performing ⁽²⁾	$	361,153	$	161,460	$	384,202	$	105,134	$	36,358	$	17,848	$	1,066,155
Nonperforming ⁽³⁾	103		—		—		—		—		43		146
Total loans	$	361,256	$	161,460	$	384,202	$	105,134	$	36,358	$	17,891	$	1,066,301

_____________


⁽¹⁾	Net of LIP.


⁽²⁾	There were $201.9 million of owner-occupied one-to-four family residential loans and $159.2 million of non-owner occupied one-to-four family residential loans classified as performing.


⁽³⁾	The $103,000 one-to-four family residential loan classified as nonperforming is owner-occupied.



	December 31, 2018
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total⁽¹⁾
	(In thousands)
Performing ⁽²⁾	$	341,584	$	169,355	$	373,472	$	108,854	$	30,486	$	12,926	$	1,036,677
Nonperforming ⁽³⁾	382		—		326		—		—		44		752
Total loans	$	341,966	$	169,355	$	373,798	$	108,854	$	30,486	$	12,970	$	1,037,429

_____________

⁽¹⁾Net of LIP.

⁽²⁾There were $193.8 million of owner-occupied one-to-four family residential loans and $147.8 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽³⁾The $382,000 of one-to-four family residential loans classified as nonperforming are all owner-occupied.

Impaired Loans. A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the original loan document or the borrower failing to comply with contractual terms of the loan. At June 30, 2019, an impaired construction loan with an outstanding balance of $11.6 million had $4.1 million of funds committed to be advanced, however, advancement of the $4.1 million of additional funds was frozen at that date. There were no funds committed to be advanced in connection with impaired loans at December 31, 2018.

The following tables present a summary of loans individually evaluated for impairment by loan type at the dates indicated, shown net of LIP:



	June 30, 2019
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	839	$	1,021	$	—
Non-owner occupied	1,686		1,686		—
Commercial real estate	2,141		2,141		—
Construction/land	11,583		15,650		—
Consumer	43		72		—
Total	16,292		20,570		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	509		556		16
Non-owner occupied	1,664		1,664		22
Total	2,173		2,220		38

Total impaired loans:
One-to-four family residential:
Owner occupied	1,348		1,577		16
Non-owner occupied	3,350		3,350		22
Commercial real estate	2,141		2,141		—
Construction/land	11,583		15,650		—
Consumer	43		72		—
Total	$	18,465	$	22,790	$	38

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.



	December 31, 2018
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,308	$	1,477	$	—
Non-owner occupied	2,375		2,375		—
Commercial real estate	2,499		2,499		—
Consumer	87		141		—
Total	6,269		6,492		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	513		560		22
Non-owner occupied	3,126		3,148		37
Commercial real estate	241		241		3
Total	3,880		3,949		62

Total impaired loans:
One-to-four family residential:
Owner occupied	1,821		2,037		22
Non-owner occupied	5,501		5,523		37
Commercial real estate	2,740		2,740		3
Consumer	87		141		—
Total	$	10,149	$	10,441	$	62

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	843	$	15	$	998	$	30
Non-owner occupied	1,863		26		2,034		52
Commercial real estate	2,149		38		2,265		76
Construction/land	5,792		228		3,861		368
Consumer	44		1		58		2
Total	10,691		308		9,216		528

Loans with an allowance:
One-to-four family residential:
Owner occupied	510		9		511		17
Non-owner occupied	2,015		22		2,385		45
Commercial real estate	—		—		80		—
Total	2,525		31		2,976		62

Total impaired loans:
One-to-four family residential:
Owner occupied	1,353		24		1,509		47
Non-owner occupied	3,878		48		4,419		97
Commercial real estate	2,149		38		2,345		76
Construction/land	5,792		228		3,861		368
Consumer	44		1		58		2
Total	$	13,216	$	339	$	12,192	$	590



	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	1,180	$	18	$	1,227	$	36
Non-owner occupied	6,136		99		6,894		221
Multifamily	1,125		18		1,128		37
Commercial real estate	1,654		40		1,457		80
Consumer	92		2		93		4
Total	10,187		177		10,799		378

Loans with an allowance:
One-to-four family residential:
Owner occupied	519		9		520		18
Non-owner occupied	3,232		35		3,258		82
Commercial real estate	1,245		7		1,539		17
Total	4,996		51		5,317		117

Total impaired loans:
One-to-four family residential:
Owner occupied	1,699		27		1,747		54
Non-owner occupied	9,368		134		10,152		303
Multifamily	1,125		18		1,128		37
Commercial real estate	2,899		47		2,996		97
Consumer	92		2		93		4
Total	$	15,183	$	228	$	16,116	$	495

Troubled Debt Restructurings. Certain loan modifications are accounted for as troubled debt restructured loans (“TDRs”). At June 30, 2019, the TDR portfolio totaled $6.7 million. At December 31, 2018, the TDR portfolio totaled $9.4 million. At both dates, all TDRs were performing according to their modified repayment terms.

At June 30, 2019, the Company had no commitments to extend additional credit to borrowers whose loan terms have been modified in TDRs. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment as part of the calculation of the ALLL. No loans accounted for as TDRs were charged-off to the ALLL for the three and six months ended June 30, 2019 and 2018.

The following table presents TDR modifications for the periods indicated and their recorded investment prior to and after the modification:



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
One-to-four family residential
Principal and interest with interest rate concession and advancement of maturity date	—	—	—	6	824	824
Advancement of maturity date	—	—	—	3	694	694
Total	—	—	—	9	1,518	1,518



	Three Months Ended June 30, 2018					Six Months Ended June 30, 2018
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Multifamily
Advancement of maturity date	1	$	1,124	$	1,124	1	$	1,124	$	1,124
Total	1	1,124		1,124		1	1,124		1,124

TDRs that default after they have been modified are typically evaluated individually on a collateral basis. Any additional impairment is charged to the ALLL. For the three and six months ended June 30, 2019, and June 30, 2018, no loans that had been modified in the previous 12 months defaulted.