(6) Loans Receivable and Allowance for Loan Losses

The components of loans receivable are as follows:


	March 31,		December 31,
(Dollars in thousands)	2020		2019
Real estate loans:
First mortgages:
One- to four-family residential	$	1,514,599	$	1,536,781
Multi-family residential		9,660		9,965
Construction, commercial and other		22,389		23,382
Home equity loans and lines of credit		10,250		10,084
Total real estate loans		1,556,898		1,580,212
Other loans:
Loans on deposit accounts		271		235
Consumer and other loans		9,624		9,484
Total other loans		9,895		9,719
Less:
Net unearned fees and discounts		(2,289)		(2,435)
Allowance for loan losses		(2,918)		(2,712)
Total unearned fees, discounts and allowance for loan losses		(5,207)		(5,147)
Loans receivable, net	$	1,561,586	$	1,584,784

The table below presents the activity in the allowance for loan losses by portfolio segment:


			Construction,		Home
			Commercial		Equity
			and Other		Loans and
	Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals
Three months ended March 31, 2020:
Balance, beginning of period	$	1,741	$	511	$	1	$	54	$	405	$	2,712
Provision (reversal of provision) for loan losses		122		(59)		—		129		25		217
		1,863		452		1		183		430		2,929
Charge-offs		—		—		—		(12)		—		(12)
Recoveries		—		—		—		1		—		1
Net charge-offs		—		—		—		(11)		—		(11)
Balance, end of period	$	1,863	$	452	$	1	$	172	$	430	$	2,918


			Construction,		Home
			Commercial		Equity
			and Other		Loans and
	Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals
Three months ended March 31, 2019:
Balance, beginning of period	$	1,797	$	443	$	1	$	47	$	354	$	2,642
Provision (reversal of provision) for loan losses		(15)		11		—		4		5		5
		1,782		454		1		51		359		2,647
Charge-offs		—		—		—		(7)		—		(7)
Recoveries		18		—		—		1		—		19
Net recoveries (charge-offs)		18		—		—		(6)		—		12
Balance, end of period	$	1,800	$	454	$	1	$	45	$	359	$	2,659

Management considers the allowance for loan losses at March 31, 2020 to be at an appropriate level to provide for probable losses that can be reasonably estimated based on general and specific conditions at that date. While the Company uses the best information it has available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. To the extent actual outcomes differ from the estimates, additional provisions for credit losses may be required that would reduce future earnings. In addition, as an integral part of their examination process, the bank regulators periodically review the allowance for loan losses and may require the Company to increase the allowance based on their analysis of information available at the time of their examination. During the three months ended March 31, 2020, the qualitative factors used to calculate the allowance for loan losses were raised in consideration of Hawaii’s rising unemployment rate due to the stay-at-home mandate from the government to minimize the spread of COVID-19.

The table below presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method:


			Construction,		Home
			Commercial		Equity
			and Other		Loans and
	Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals
March 31, 2020:
Allowance for loan losses:
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,863		452		1		172		430		2,918
Total ending allowance balance	$	1,863	$	452	$	1	$	172	$	430	$	2,918

Loans:
Ending loan balance:
Individually evaluated for impairment	$	1,197	$	—	$	85	$	—	$	—	$	1,282
Collectively evaluated for impairment		1,520,806		22,340		10,166		9,910		—		1,563,222
Total ending loan balance	$	1,522,003	$	22,340	$	10,251	$	9,910	$	—	$	1,564,504

December 31, 2019:
Allowance for loan losses:
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,741		511		1		54		405		2,712
Total ending allowance balance	$	1,741	$	511	$	1	$	54	$	405	$	2,712

Loans:
Ending loan balance:
Individually evaluated for impairment	$	1,224	$	—	$	89	$	—	$	—	$	1,313
Collectively evaluated for impairment		1,543,125		23,326		9,997		9,735		—		1,586,183
Total ending loan balance	$	1,544,349	$	23,326	$	10,086	$	9,735	$	—	$	1,587,496

The table below presents the balance of impaired loans individually evaluated for impairment by class of loans:


			Unpaid
	Recorded		Principal
(Dollars in thousands)	Investment		Balance
March 31, 2020:
With no related allowance recorded:
One- to four-family residential mortgages	$	1,197	$	1,602
Home equity loans and lines of credit		85		177
Total	$	1,282	$	1,779

December 31, 2019:
With no related allowance recorded:
One- to four-family residential mortgages	$	1,224	$	1,615
Home equity loans and lines of credit		89		178
Total	$	1,313	$	1,793

The table below presents the average recorded investment and interest income recognized on impaired loans by class of loans:


	For the Three Months Ended
	March 31,
	Average		Interest
	Recorded		Income
(Dollars in thousands)	Investment		Recognized
2020:
With no related allowance recorded:
One- to four-family residential mortgages	$	1,210	$	8
Home equity loans and lines of credit		87		—
Total	$	1,297	$	8

2019:
With no related allowance recorded:
One- to four-family residential mortgages	$	2,638	$	9
Home equity loans and lines of credit		146		—
Total	$	2,784	$	9

There were no loans individually evaluated for impairment with a related allowance for loan loss as of March 31, 2020 or December 31, 2019. Loans individually evaluated for impairment do not have an allocated allowance for loan loss because they are written down to fair value at the time of impairment.

The Company had six nonaccrual loans with a book value of $708,000 as of March 31, 2020 and six nonaccrual loans with a book value of $736,000 as of December 31, 2019. The Company collected interest on nonaccrual loans of $17,000 and $23,000 during the three months ended March 31, 2020 and 2019, respectively, but due to accounting and regulatory requirements, the Company recorded the interest as a reduction of principal. The Company would have recognized additional interest income of $15,000 and $34,000 during the three months ended March 31, 2020 and 2019, respectively, had the loans been accruing interest. The Company did not have any loans 90 days or more past due and still accruing interest as of March 31, 2020. At December 31, 2019, the Company had one loan for $1,000 that was 90 days or more past due and still accruing interest.

The table below presents the aging of loans and accrual status by class of loans:


															Loans
															90 Days
															or More
	30 - 59		60 - 89		90 Days or										Past Due
	Days Past		Days Past		More		Total Past		Loans Not		Total		Nonaccrual		and Still
(Dollars in thousands)	Due		Due		Past Due		Due		Past Due		Loans		Loans		Accruing
March 31, 2020:
One- to four-family residential mortgages	$	104	$	179	$	—	$	283	$	1,512,079	$	1,512,362	$	623	$	—
Multi-family residential mortgages		—		—		—		—		9,641		9,641		—		—
Construction, commercial and other mortgages		—		—		—		—		22,340		22,340		—		—
Home equity loans and lines of credit		—		25		—		25		10,226		10,251		85		—
Loans on deposit accounts		—		—		—		—		271		271		—		—
Consumer and other		1		—		—		1		9,638		9,639		—		—

Total	$	105	$	204	$	—	$	309	$	1,564,195	$	1,564,504	$	708	$	—

December 31, 2019:
One- to four-family residential mortgages	$	—	$	959	$	—	$	959	$	1,533,446	$	1,534,405	$	647	$	—
Multi-family residential mortgages		—		—		—		—		9,944		9,944		—		—
Construction, commercial and other mortgages		—		—		—		—		23,326		23,326		—		—
Home equity loans and lines of credit		—		26		—		26		10,060		10,086		89		—
Loans on deposit accounts		—		—		—		—		235		235		—		—
Consumer and other		33		1		1		35		9,465		9,500		—		1

Total	$	33	$	986	$	1	$	1,020	$	1,586,476	$	1,587,496	$	736	$	1

The Company primarily uses the aging of loans and accrual status to monitor the credit quality of its loan portfolio. When a mortgage loan becomes seriously delinquent (90 days or more contractually past due), it displays weaknesses that may result in a loss. As a loan becomes more delinquent, the likelihood of the borrower repaying the loan decreases and the loan becomes more collateral-dependent. A mortgage loan becomes collateral-dependent when the proceeds for repayment can be expected to come only from the sale or operation of the collateral and not from borrower repayments. Generally, appraisals are obtained after a loan becomes collateral-dependent or is four months delinquent. The carrying value of collateral-dependent loans is adjusted to the fair value of the collateral less selling costs. Any commercial real estate, commercial, construction or equity loan that has a loan balance in excess of a specified amount is also periodically reviewed to determine whether the loan exhibits any weaknesses and is performing in accordance with its contractual terms.

There were no loans modified in a troubled debt restructuring during the three months ended March 31, 2020 or 2019. There were no new troubled debt restructurings within the 12 months ended March 31, 2020 that subsequently defaulted.

The table below summarizes troubled debt restructurings by class of loans:


	Number of		Accrual		Number of		Nonaccrual
(Dollars in thousands)	Loans		Status		Loans		Status		Total
March 31, 2020:
One- to four-family residential mortgages		3	$	574		2	$	510	$	1,084
Home equity loans and lines of credit		—		—		1		60		60
Total		3	$	574		3	$	570	$	1,144

December 31, 2019:
One- to four-family residential mortgages		3	$	577		2	$	525	$	1,102
Home equity loans and lines of credit		—		—		1		64		64
Total		3	$	577		3	$	589	$	1,166

There were no delinquent restructured loans as of March 31, 2020 or December 31, 2019. Restructurings include deferrals of interest and/or principal payments and temporary or permanent reductions in interest rates due to the financial difficulties of the borrowers. At March 31, 2020, we had no commitments to lend any additional funds to these borrowers.

In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. Among other provisions, the CARES Act gives financial institutions the option to suspend certain accounting requirements related to troubled debt restructuring for loans meeting certain criteria. For loans that were not more than 30 days past due as of December 31, 2019 and are: (a) modified related to COVID-19, and (b) modified between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the termination of the national emergency, financial institutions are not required to account for such loans as troubled debt restructurings or to determine impairment accordingly. The Company has decided to utilize this provision of the CARES Act for loan modifications meeting the stated criteria.

The Company had no real estate owned as of March 31, 2020 or December 31, 2019. There were no loans in the process of foreclosure at March 31, 2020 and December 31, 2019.

Nearly all of our real estate loans are collateralized by real estate located in the State of Hawaii. Loan-to-value ratios on these real estate loans generally do not exceed 80% at the time of origination.

During the three months ended March 31, 2020 and 2019, the Company sold mortgage loans held for sale with principal balances of $2.7 million and $2.3 million, respectively, and recognized gains of $30,000 and $6,000, respectively. The Company had two loans held for sale totaling $681,000 at March 31, 2020 and one loan held for sale for $470,000 at December 31, 2019.

During the three months ended March 31, 2020, the Company securitized fixed-rate first mortgage loans with a book value of $9.4 million and received mortgage-backed securities with a fair market value of $9.8 million. The Company retained the servicing of these loans and recorded mortgage servicing assets with a fair market value of $78,000. A net gain of $377,000 was recognized on the transaction.

The Company serviced loans for others with principal balances of $73.1 million at March 31, 2020 and $65.1 million at December 31, 2019. Of these amounts, $46.8 million and $37.8 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at March 31, 2020 and December 31, 2019, respectively. The amount of contractually specified servicing fees earned for the three months ended March 31, 2020 and 2019 was $44,000 and $20,000, respectively. The fees are reported in service fees on loan and deposit accounts in the consolidated statements of income.