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Section 1: 10-Q (10-Q)

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

                                                                                                                                                                                                      
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to

COMMISSION FILE NUMBER 001-35633

Sound Financial Bancorp, Inc.
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
45-5188530
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2400 3rd Avenue, Suite 150, Seattle, Washington
 
98121
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code:  (206) 448-0884

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES    NO

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   YES    NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES     NO
 
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.

As of November 7, 2018, there were 2,539,814 shares of the registrant's common stock outstanding. 

 

SOUND FINANCIAL BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
Page Number
PART I    FINANCIAL INFORMATION
 
 
 
Item 1.      Financial Statements
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (unaudited)
3
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)
4
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)
5
 
 
Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2018 and 2017 (unaudited)
6
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (unaudited)
7
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
8
 
 
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
27
 
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
36
 
 
Item 4.    Controls and Procedures
36
 
 
PART II   OTHER INFORMATION
 
 
 
Item 1.    Legal Proceedings
37
 
 
Item 1A. Risk Factors
37
 
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
37
 
 
Item 3.    Defaults Upon Senior Securities
37
 
 
Item 4.    Mine Safety Disclosures
37
 
 
Item 5.    Other Information
37
 
 
Item 6.    Exhibits
38
 
 
SIGNATURES
39
 
 
EXHIBITS
 
 
 

Table of Contents

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share amounts)
 
 
 
September 30,
2018
   
December 31,
2017
 
ASSETS
           
Cash and cash equivalents
 
$
62,292
   
$
60,680
 
Available-for-sale securities, at fair value
   
5,011
     
5,435
 
Loans held-for-sale
   
695
     
1,777
 
Loans held-for-portfolio
   
617,230
     
548,595
 
Allowance for loan losses
   
(5,748
)
   
(5,241
)
Total loans held-for-portfolio, net
   
611,482
     
543,354
 
Accrued interest receivable
   
2,204
     
1,977
 
Bank-owned life insurance ("BOLI"), net
   
13,304
     
12,750
 
Other real estate owned ("OREO") and repossessed assets, net
   
600
     
610
 
Mortgage servicing rights, at fair value
   
3,447
     
3,426
 
Federal Home Loan Bank ("FHLB") stock, at cost
   
4,634
     
3,065
 
Premises and equipment, net
   
7,255
     
7,392
 
Other assets
   
4,399
     
4,778
 
Total assets
 
$
715,323
   
$
645,244
 
LIABILITIES
               
Deposits
               
Interest-bearing
 
$
439,923
   
$
442,277
 
Noninterest-bearing demand
   
99,909
     
72,123
 
Total deposits
   
539,832
     
514,400
 
Borrowings
   
96,500
     
59,000
 
Accrued interest payable
   
93
     
77
 
Other liabilities
   
7,636
     
5,972
 
Advance payments from borrowers for taxes and insurance
   
1,132
     
635
 
Total liabilities
   
645,193
     
580,084
 
COMMITMENTS AND CONTINGENCIES (NOTE 7)
   
     
 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding
   
     
 
Common stock, $0.01 par value, 40,000,000 shares authorized, 2,539,814 and 2,511,127 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
   
25
     
25
 
Additional paid-in capital
   
25,523
     
24,986
 
Unearned shares - Employee Stock Ownership Plan ("ESOP")
   
(369
)
   
(453
)
Retained earnings
   
44,879
     
40,493
 
Accumulated other comprehensive income, net of tax
   
72
     
109
 
Total stockholders' equity
   
70,130
     
65,160
 
Total liabilities and stockholders' equity
 
$
715,323
   
$
645,244
 
 
See notes to condensed consolidated financial statements

3

Table of Contents
 
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except share and per share amounts)
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2018
   
2017
   
2018
   
2017
 
INTEREST INCOME
                       
Loans, including fees
 
$
7,932
   
$
6,832
   
$
23,077
   
$
19,630
 
Interest and dividends on investments, cash and cash equivalents
   
378
     
234
     
888
     
544
 
Total interest income
   
8,310
     
7,066
     
23,965
     
20,174
 
INTEREST EXPENSE
                               
Deposits
   
974
     
808
     
2,665
     
2,199
 
Borrowings
   
439
     
72
     
993
     
238
 
Total interest expense
   
1,413
     
880
     
3,658
     
2,437
 
Net interest income
   
6,897
     
6,186
     
20,307
     
17,737
 
PROVISION FOR LOAN LOSSES
   
250
     
250
     
500
     
250
 
Net interest income after provision for loan losses
   
6,647
     
5,936
     
19,807
     
17,487
 
NONINTEREST INCOME
                               
Service charges and fee income
   
504
     
439
     
1,426
     
1,442
 
Earnings on cash surrender value of bank-owned life insurance
   
149
     
82
     
308
     
245
 
Mortgage servicing income
   
22
     
18
     
447
     
399
 
Net gain on sale of loans
   
333
     
287
     
1,008
     
720
 
Other income
   
490
     
     
490
     
 
Total noninterest income
   
1,498
     
826
     
3,679
     
2,806
 
NONINTEREST EXPENSE
                               
Salaries and benefits
   
3,327
     
2,777
     
9,523
     
8,130
 
Operations
   
1,280
     
1,002
     
3,718
     
3,052
 
Regulatory assessments
   
136
     
80
     
328
     
340
 
Occupancy
   
588
     
520
     
1,636
     
1,415
 
Data processing
   
528
     
448
     
1,442
     
1,293
 
Net loss on OREO and repossessed assets
   
11
     
109
     
62
     
123
 
Total noninterest expense
   
5,870
     
4,936
     
16,709
     
14,353
 
Income before provision for income taxes
   
2,275
     
1,826
     
6,777
     
5,940
 
Provision for income taxes
   
445
     
604
     
1,380
     
2,001
 
Net income
 
$
1,830
   
$
1,222
   
$
5,397
   
$
3,939
 
 
                               
Earnings per common share:
                               
Basic
 
$
0.73
   
$
0.49
   
$
2.17
   
$
1.57
 
Diluted
 
$
0.71
   
$
0.48
   
$
2.10
   
$
1.54
 
Weighted-average number of common shares outstanding:
                               
Basic
   
2,502,959
     
2,506,863
     
2,492,738
     
2,502,399
 
Diluted
   
2,569,535
     
2,562,373
     
2,564,688
     
2,562,606
 
 
See notes to condensed consolidated financial statements 


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Table of Contents
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2018
   
2017
   
2018
   
2017
 
Net income
 
$
1,830
   
$
1,222
   
$
5,397
   
$
3,939
 
Available for sale securities:
                               
Unrealized holding (losses)/gains arising during the period
   
(8
)
   
12
     
(46
)
   
100
 
Income tax benefit/(expense) related to unrealized gains/losses
   
1
     
(4
)
   
9
     
(34
)
Other comprehensive (loss)/income, net of tax
   
(7
)
   
8
     
(37
)
   
66
 
Comprehensive income
 
$
1,823
   
$
1,230
   
$
5,360
   
$
4,005
 
 
See notes to condensed consolidated financial statements

5

Table of Contents
 
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
For the Nine Months Ended September 30, 2018 and 2017 (unaudited)
(In thousands, except share and per share amounts)
 
 
 
Shares
   
Common
Stock
   
Additional Paid
-in Capital
   
Unearned
ESOP Shares
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income, net of
tax
   
Total
Stockholders'
Equity
 
Balances at December 31, 2016
   
2,498,804
   
$
25
   
$
23,979
   
$
(683
)
 
$
36,873
   
$
81
   
$
60,275
 
Net income
                                   
3,939
             
3,939
 
Other comprehensive income, net of tax
                                           
66
     
66
 
Share-based compensation
                   
285
                             
285
 
Cash dividends paid on common stock ($0.50 per share)
                                   
(1,254
)
           
(1,254
)
Common stock surrendered
   
(3,353
)
                                               
Restricted stock awards issued
   
576
                                             
 
Exercise of options
   
14,018
             
33
                             
33
 
Balances at September 30, 2017
   
2,510,045
   
$
25
   
$
24,297
   
$
(683
)
 
$
39,558
   
$
147
   
$
63,344
 
 
 
 
Shares
   
Common
Stock
   
Additional Paid-
in Capital
   
Unearned
ESOP Shares
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income, net of
tax
   
Total
Stockholders'
Equity
 
Balances at December 31, 2017
   
2,511,127
   
$
25
   
$
24,986
   
$
(453
)
 
$
40,493
   
$
109
   
$
65,160
 
Net income
                                   
5,397
             
5,397
 
Other comprehensive loss, net of tax
                                           
(37
)
   
(37
)
Share-based compensation
                   
201
                             
201
 
Cash dividends paid on common stock ($0.40 per share)
                                   
(1,011
)
           
(1,011
)
Restricted shares forfeited
   
(343
)
                                           
 
Common stock surrendered
   
(15,990
)
                                           
 
Exercise of options
   
45,020
             
102
                             
102
 
Allocation of ESOP shares
                   
234
     
84
                     
318
 
Balances at September 30, 2018
   
2,539,814
   
$
25
   
$
25,523
   
$
(369
)
 
$
44,879
   
$
72
   
$
70,130
 
 
See notes to condensed consolidated financial statements
 
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
 
Nine Months Ended September 30,
 
 
 
2018
   
2017
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
 
$
5,397
   
$
3,939
 
Adjustments to reconcile net income to net cash from operating activities:
               
Amortization of net discounts on investments
   
(31
)
   
(16
)
Provision for loan losses
   
500
     
250
 
Depreciation and amortization
   
745
     
706
 
Compensation expense related to stock options and restricted stock
   
201
     
285
 
Change in fair value of mortgage servicing rights
   
381
     
191
 
Increase in cash surrender value of BOLI
   
(240
)
   
(245
)
Net change in advances from borrowers for taxes and insurance
   
497
     
428
 
Net gain on sale of loans
   
(1,008
)
   
(720
)
Proceeds from sale of loans held-for-sale
   
39,739
     
35,818
 
Originations of loans held-for-sale
   
(38,314
)
   
(34,536
)
Net loss on OREO and repossessed assets
   
62
     
123
 
Change in operating assets and liabilities:
               
Accrued interest receivable
   
(227
)
   
(127
)
Other assets
   
379
     
(482
)
Accrued interest payable
   
16
     
(5
)
Other liabilities
   
1,664
     
367
 
Net cash provided by operating activities
   
9,761
     
5,976
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from principal payments, maturities and sales of available-for-sale securities
   
455
     
1,032
 
Net increase in loans
   
(68,635
)
   
(28,505
)
Purchase of BOLI
   
(315
)
   
(275
)
Purchases of premises and equipment, net
   
(608
)
   
(2,495
)
Proceeds from sale of OREO and other repossessed assets
   
     
248
 
Net cash received from branch acquisition
   
     
13,671
 
Net cash used in investing activities
   
(69,103
)
   
(16,324
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase in deposits
   
25,432
     
43,415
 
Proceeds from borrowings
   
198,000
     
137,000
 
Repayment of borrowings
   
(160,000
)
   
(163,792
)
FHLB stock (purchased)/redeemed
   
(1,569
)
   
1,015
 
Dividends paid on common stock
   
(1,011
)
   
(1,254
)
Proceeds from stock option exercises
   
102
     
33
 
Net cash provided by financing activities
   
60,954
     
16,417
 
Net change in cash and cash equivalents
   
1,612
     
6,069
 
Cash and cash equivalents, beginning of period
   
60,680
     
54,582
 
Cash and cash equivalents, end of period
 
$
62,292
   
$
60,651
 
 
               
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for income taxes
 
$
2,200
   
$
1,910
 
Interest paid on deposits and borrowings
   
3,674
     
2,442
 
Assets acquired in acquisition of branch
   
     
14,474
 
 
See notes to condensed consolidated financial statements

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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited) 

Note 1 – Basis of Presentation

The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc., and its wholly owned subsidiary, Sound Community Bank.  References in this document to Sound Financial Bancorp refer to Sound Financial Bancorp, Inc. and references to the "Bank" refer to Sound Community Bank. References to "we," "us," and "our" or the "Company" refers to Sound Financial Bancorp and its wholly-owned subsidiary, Sound Community Bank, unless the context otherwise requires.
 
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission ("SEC").  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.  These unaudited financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on March 27, 2018 ("2017 Form 10-K").  The results for the interim periods are not necessarily indicative of results for a full year.   

Certain amounts in the prior period's consolidated financial statements have been reclassified to conform to the current presentation.  These classifications do not have an impact on previously reported consolidated net income, retained earnings, stockholders' equity or earnings per share.

Note 2 – Accounting Pronouncements Recently Issued or Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) which postponed the effective date of 2014-09. Subsequently, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. This amendment clarifies that an entity should determine if it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The core principle of Topic 606 is that an entity must recognize revenue when it has satisfied a performance obligation of transferring promised goods or services to a customer. These standards were effective for interim and annual periods beginning after December 15, 2017. The Company has analyzed its revenue sources of noninterest income to determine when the satisfaction of the performance obligation occurs and the appropriate recognition of revenue. For further information, see Note 11 - Revenue from Contracts with Customers of this report. The adoption of these ASUs did not have a material impact on the Company's consolidated financial statements, other than the additional disclosures included in Note 11 of this report.
 
In January 2016, FASB issued ASU No. 2016-01, Financial Instruments - Overall, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. In addition, the amendments in this ASU require an entity to disclose the fair value of financial instruments using the exit price notion. Exit price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The methods of determining the fair value of assets and liabilities are consistent with our methodologies disclosed in Note 11 - Fair Value Measurements of the Company's 2017 Form 10-K, except for the valuation of loans held-for-investment and time deposits which were impacted by the adoption of ASU 2016-01. Prior to adopting the amendments included in the standard, the Company was allowed to measure fair value under an entry price notion. The entry price notion previously applied by the Company used a discounted cash flows technique to calculate the present value of expected future cash flows for a financial instrument. The exit price notion uses the same approach, but also incorporates other factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. As of September 30, 2018, the technique used by the Company to estimate the exit price of the loan portfolio consists of similar procedures to those used as of December 31, 2017, but with added emphasis on both illiquidity risk and credit risk not captured by the previously applied entry price notion. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.  The amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has used the exit price notion in the fair value disclosure of financial instruments in Note 5 of this report. The adoption of ASU 2016-01 did not have a material impact on the Company's consolidated financial statements.
 
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In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize, on the balance sheet, the assets and liabilities arising from operating leases. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. A lessee should include payments to be made in an optional period only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. For a finance lease, interest payments should be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income. For operating leases, the lease cost should be allocated over the lease term on a generally straight-line basis. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. This ASU amended the new leases standard to give entities another option for transition and to provide lessors with a practical expedient. The transition option allows entities to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. The practical expedient provides lessors with an option to not separate non-lease components from the associated lease components when certain criteria are met and requires them to account for the combined component in accordance with the new revenue standard if the associated non-lease components are the predominant components. The amendments have the same effective date as ASU 2016-02. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in the ASU is permitted. The effect of the adoption of these ASUs will depend on leases at time of adoption.
Although an estimate of the impact of the new leasing standard has not yet been determined, once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements.
 
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses. The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected. The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period. The measurement of expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. Available-for-sale securities will bifurcate the fair value mark and establish an allowance for credit losses through the income statement for the credit portion of that mark. The interest portion will continue to be recognized through accumulated other comprehensive income or loss. The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 with early adoption permitted after December 15, 2018.  While the Company has not quantified the impact of this ASU, it does expect changing from the current incurred loss model to an expected loss model will result in an earlier recognition of losses. The Company also expects that once adopted the allowance for loan losses will increase, however, until its evaluation is complete the magnitude of the increase will be unknown.
 
In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.  This ASU addresses the appropriate classification of eight specific cash flow issues on the cash flow statement. Debt prepayment costs should be classified as an outflow for financing activities. Settlement of zero-coupon debt instruments divides the interest portion as an outflow for operating activities and the principal portion as an outflow for financing activities. Contingent consideration payments made after a business combination should be classified as outflows for financing and operating activities. Proceeds from the settlement of bank-owned life insurance policies should be classified as inflows from investing activities. Other specific areas are identified in the ASU as to the appropriate classification of the cash inflows or outflows.  The amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not currently have items on its cash flow statement that were impacted by adoption of this ASU and therefore adoption of ASU 2016-15 did not have a material impact on the Company's consolidated financial statements.
 
In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20). ASU 2017-08 is intended to amend the amortization period for certain purchased callable debt securities held at a premium. Under ASU 2017-08, the FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company is reviewing its securities portfolio to assess the impact the adoption of this ASU will have on the Company's consolidated financial statements but does not expect this ASU to have a material impact on the Company's consolidated financial statements.
 
In May 2017, the FASB issued ASU No. 2017-09, Compensation--Stock Compensation (Topic 718): Scope of Modification Accounting. The ASU was issued to provide clarity as to when to apply modification accounting when there is a change in the terms or conditions of a share-based payment award. According to this ASU, an entity should account for the effects of a modification unless the fair value, vesting conditions, and balance sheet classification of the award is the same after the modification as compared to the original award prior to the modification. The standard was effective for reporting periods beginning after December 15, 2017. The Company has not had any modifications on share-based payment awards and therefore the adoption of ASU No. 2017-09 did not have a material impact on the Company's consolidated financial statements.

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In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity's risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities and  reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2017-12 is not expected to have a material impact on the Company's consolidated financial statements.

In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU was issued to allow a reclassification from accumulated other comprehensive income to retained earnings from stranded tax effects resulting from the revaluation of the Company's net deferred tax asset ("DTA") to the new corporate tax rate of 21% as a result of the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. The adoption of ASU No. 2018-02 is not expected to have a material impact on the Company's consolidated financial statements.

In March 2018, FASB issued ASU No. 2018-05, Income Taxes (Topic 740). This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Act for which the accounting under Topic 740 was not yet complete, but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity's financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the Consolidated Financial Statements on Form 10-K as of December 31, 2017. As of September 30, 2018, the Company did not incur any adjustments to the provisional recognition.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU amends the accounting for shared-based payments awards to nonemployees to align with the accounting for employee awards. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. Amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2018-07 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). This ASU modifies the disclosure requirements on fair value measurements. The following disclosure requirements were removed from FASB Accounting Standards Codification ("ASC") Topic 820 – Fair Value Measurement: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. This ASU clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the following disclosure requirements for Level 3 measurements: (1) changes in unrealized gains and losses for the period included in other comprehensive income for the recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.  Amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for any removed or modified disclosures. The adoption of ASU 2018-13 is not expected to have a material impact on the Company's consolidated financial statements.

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Note 3 – Investments

The amortized cost and fair value of our available-for-sale ("AFS") securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):
 
 
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
September 30, 2018
                       
Municipal bonds
 
$
3,224
   
$
111
   
$
(29
)
 
$
3,306
 
Agency mortgage-backed securities
   
1,668
     
39
     
(2
)
   
1,705
 
Total
 
$
4,892
   
$
150
   
$
(31
)
 
$
5,011
 
 
                               
December 31, 2017
                               
Municipal bonds
 
$
3,240
   
$
155
   
$
(26
)
 
$
3,369
 
Agency mortgage-backed securities
   
2,030
     
36
     
     
2,066
 
Total
 
$
5,270
   
$
191
   
$
(26
)
 
$
5,435
 

The amortized cost and fair value of AFS securities at September 30, 2018, by contractual maturity, are shown below (in thousands).  Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.
 
 
 
September 30, 2018
 
 
 
Amortized
Cost
   
Fair
Value
 
Due after one year through five years
 
$
1,571
   
$
1,547
 
Due after five years through ten years
   
153
     
160
 
Due after ten years
   
1,500
     
1,599
 
Mortgage-backed securities
   
1,668
     
1,705
 
Total
 
$
4,892
   
$
5,011
 

There were no pledged securities at September 30, 2018 and December 31, 2017.
 
There were no sales of AFS securities during the three and nine months ended September 30, 2018 and 2017.

The following tables summarize the aggregate fair value and gross unrealized loss by length of time of those investments that have been in a continuous unrealized loss position at the dates indicated (in thousands):
 
 
September 30, 2018
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Municipal bonds
 
$
   
$
   
$
1,282
   
$
(29
)
 
$
1,282
   
$
(29
)
Agency mortgage-backed securities
   
235
     
(2
)
   
     
     
235
     
(2
)
Total
 
$
235
   
$
(2
)
 
$
1,282
   
$
(29
)
 
$
1,517
   
$
(31
)
 
 
December 31, 2017
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Municipal bonds
 
$
   
$
   
$
1,302
   
$
(26
)
 
$
1,302
   
$
(26
)
Total
 
$
   
$
   
$
1,302
   
$
(26
)
 
$
1,302
   
$
(26
)

There were no credit losses recognized in earnings during the three and nine months ended September 30, 2018 or 2017 relating to the Company's securities.
 
At September 30, 2018, there was one security in an unrealized loss position for less than 12 months and there were three municipal securities in an unrealized loss position for over 12 months.  At December 31, 2017, there were no securities in an unrealized loss position for less than 12 months and there were three municipal securities in an unrealized loss position for more than 12 months.  The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not related to the underlying credit of the issuers or the underlying collateral.  It is expected that these securities will not be settled at a price less than the amortized cost of each investment.  Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because we do not intend to sell the securities in this class and it is not likely that we will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered an other-than-temporary impairment ("OTTI") during the three and nine months ended September 30, 2018 and 2017.

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Note 4 – Loans

The composition of the loans-held-for portfolio at the dates indicated, excluding loans held-for-sale, was as follows (in thousands):
 
 
 
September 30,
2018
   
December 31,
2017
 
Real estate loans:
           
One-to-four family
 
$
170,509
   
$
157,417
 
Home equity
   
28,525
     
28,379
 
Commercial and multifamily
   
254,050
     
211,269
 
Construction and land
   
60,877
     
61,482
 
Total real estate loans
 
$
513,961
   
$
458,547
 
Consumer loans:
               
Manufactured homes
   
19,448
     
17,111
 
Floating homes
   
41,377
     
29,120
 
Other consumer
   
5,026
     
4,902
 
Total consumer loans
   
65,851
     
51,133
 
Commercial business loans
   
39,681
     
40,829
 
Total loans held-for-portfolio
   
619,493
     
550,509
 
Deferred fees
   
(2,263
)
   
(1,914
)
Total loans, gross held-for-portfolio
   
617,230
     
548,595
 
Allowance for loan losses
   
(5,748
)
   
(5,241
)
Total loans held-for-portfolio, net
 
$
611,482
   
$
543,354
 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2018 (in thousands):
 
 
 
One-to-four
family
   
Home
equity
   
Commercial
and
multifamily
   
Construction
and land
   
Manufactured
homes
   
Floating
homes
   
Other
consumer
   
Commercial
business
   
Unallocated
   
Total
 
Allowance for loan losses:
                                                           
Individually evaluated for impairment
 
$
363
   
$
30
   
$
   
$
9
   
$
295
   
$
   
$
69
   
$
179
   
$
   
$
945
 
Collectively evaluated for impairment
   
1,076
     
180
     
1,631
     
379
     
124
     
269
     
38
     
240
     
866
     
4,803
 
Ending balance
 
$
1,439
   
$
210
   
$
1,631
   
$
388
   
$
419
   
$
269
   
$
107
   
$
419
   
$
866
   
$
5,748
 
Loans hed-for-portfolio:
                                                                               
Individually evaluated for impairment
 
$
4,932
   
$
823
   
$
3,274
   
$
2,484
   
$
425
   
$
   
$
163
   
$
2,883
   
$
   
$
14,984
 
Collectively evaluated for impairment
   
165,577
     
27,702
     
250,776
     
58,393
     
19,023
     
41,377
     
4,863
     
36,798
     
     
604,509
 
Ending balance
 
$
170,509
   
$
28,525
   
$
254,050
   
$
60,877
   
$
19,448
   
$
41,377
   
$
5,026
   
$
39,681
   
$
   
$
619,493
 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2017 (in thousands):

 
 
One-to-four
family
   
Home
equity
   
Commercial
and
multifamily
   
Construction
and land
   
Manufactured
homes
   
Floating
homes
   
Other
consumer
   
Commercial
business
   
Unallocated
   
Total
 
Allowance for loan losses:
                                                           
Individually evaluated for impairment
 
$
555
   
$
120
   
$
   
$
13
   
$
258
   
$
   
$
43
   
$
135
   
$
   
$
1,124
 
Collectively evaluated for impairment
   
881
     
173
     
1,250
     
365
     
97
     
169
     
37
     
237
     
908
     
4,117
 
Ending balance
 
$
1,436
   
$
293
   
$
1,250
   
$
378
   
$
355
   
$
169
   
$
80
   
$
372
   
$
908
   
$
5,241
 
Loans held-for-portfolio:
                                                                               
Individually evaluated for impairment
 
$
6,256
   
$
1,028
   
$
1,699
   
$
141
   
$
385
   
$
   
$
194
   
$
1,000
   
$
   
$
10,703
 
Collectively evaluated for impairment
   
151,161
     
27,351
     
209,570
     
61,341
     
16,726
     
29,120
     
4,708
     
39,829
     
     
539,806
 
Ending balance
 
$
157,417
   
$
28,379
   
$
211,269
   
$
61,482
   
$
17,111
   
$
29,120
   
$
4,902
   
$
40,829
   
$
   
$
550,509
 

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Table of Contents
The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2018 (in thousands):

 
 
Beginning
Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending
Allowance
 
One-to-four family
 
$
1,579
   
$
   
$
   
$
(140
)
 
$
1,439
 
Home equity
   
211
     
     
3
     
(4
)
   
210
 
Commercial and multifamily
   
1,401
     
     
     
230
     
1,631
 
Construction and land
   
385
     
     
     
3
     
388
 
Manufactured homes
   
326
     
     
     
93
     
419
 
Floating homes
   
195
     
     
     
74
     
269
 
Other consumer
   
116
     
(11
)
   
3
     
(1
)
   
107
 
Commercial business
   
553
     
     
     
(134
)
   
419
 
Unallocated
   
737
     
     
     
129
     
866
 
Total
 
$
5,503
   
$
(11
)
 
$
6
   
$
250
   
$
5,748
 
 
The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2018 (in thousands):
 
 
 
Beginning
Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending
Allowance
 
One-to-four family
 
$
1,436
   
$
   
$
1
   
$
2
   
$
1,439
 
Home equity
   
293
     
(7
)
   
41
     
(117
)
   
210
 
Commercial and multifamily
   
1,250
     
     
     
381
     
1,631
 
Construction and land
   
378
     
     
     
10
     
388
 
Manufactured homes
   
355
     
(12
)
   
     
76
     
419
 
Floating homes
   
169
     
     
     
100
     
269
 
Other consumer
   
80
     
(24
)
   
8
     
43
     
107
 
Commercial business
   
372
     
     
     
47
     
419
 
Unallocated
   
908
     
     
     
(42
)
   
866
 
Total
 
$
5,241
   
$
(43
)
 
$
50
   
$
500
   
$
5,748
 
 
The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2017 (in thousands):
 
 
 
Beginning
Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending
Allowance
 
One-to-four family
 
$
1,302
   
$
   
$
   
$
(51
)
 
$
1,251
 
Home equity
   
431
     
(89
)
   
1
     
8
     
351
 
Commercial and multifamily
   
1,153
     
     
     
32
     
1,185
 
Construction and land
   
352
     
     
     
7
     
359
 
Manufactured homes
   
178
     
(7
)
   
     
9
     
180
 
Floating homes
   
146
     
     
     
8
     
154
 
Other consumer
   
98
     
(1
)
   
2
     
(1
)
   
98
 
Commercial business
   
364
     
     
     
143
     
507
 
Unallocated
   
811
     
     
     
95
     
906
 
Total
 
$
4,835
   
$
(97
)
 
$
3
   
$
250
   
$
4,991
 
 
The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2017 (in thousands):
 
 
 
Beginning
Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending
Allowance
 
One-to-four family
 
$
1,542
   
$
   
$
   
$
(291
)
 
$
1,251
 
Home equity
   
378
     
(89
)
   
30
     
32
     
351
 
Commercial and multifamily
   
1,144
     
(24
)
   
1
     
64
     
1,185
 
Construction and land
   
459
     
     
     
(100
)
   
359
 
Manufactured homes
   
168
     
(13
)
   
3
     
22
     
180
 
Floating homes
   
132
     
     
     
22
     
154
 
Other consumer
   
112
     
(8
)
   
19
     
(25
)
   
98
 
Commercial business
   
175
     
     
     
332
     
507
 
Unallocated
   
712
     
     
     
194
     
906
 
Total
 
$
4,822
   
$
(134
)
 
$
53
   
$
250
   
$
4,991
 

13

Table of Contents
Credit Quality Indicators.  Federal regulations provide for the classification of lower quality loans as substandard, doubtful or loss.  An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.  Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.  Assets classified as doubtful have all the weaknesses inherent in assets classified substandard with the added characteristic that the weaknesses make collection or liquidation of the assets in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.  Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without establishment of a specific loss reserve is not warranted.
 
When we classify problem loans as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired).  General allowances represent loss reserves which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem loans.  When the Company classifies problem loans as a loss, we charge-off such assets in the period in which they are deemed uncollectible.  Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss, but possess identified weaknesses, are classified as either watch or special mention assets.  Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation ("FDIC"), the Bank's federal regulator, and the Washington Department of Financial Institutions ("WDFI"), the Bank's state banking regulator, both which can order the establishment of additional loss allowances.  Pass rated loans are loans that are not otherwise classified or criticized.

The following table represents the internally assigned grades as of September 30, 2018, by type of loan (in thousands):
 
 
 
One-to-
four family
   
Home
equity
   
Commercial
and multifamily
   
Construction
and land
   
Manufactured
homes
   
Floating
homes
   
Other
consumer
   
Commercial
business
   
Total
 
Grade:
                                                     
Pass
 
$
164,281
   
$
27,995
   
$
248,917
   
$
58,438
   
$
19,158
   
$
41,377
   
$
4,972
   
$
37,095
   
$
602,233
 
Watch
   
4,484
     
     
2,028
     
     
55
     
     
     
839
     
7,406
 
Special Mention
   
     
     
1,458
     
2,362
     
     
     
     
476
     
4,296
 
Substandard
   
1,744
     
530
     
1,647
     
77
     
235
     
     
54
     
1,271
     
5,558
 
Doubtful
   
     
     
     
     
     
     
     
     
 
Loss
   
     
     
     
     
     
     
     
     
 
Total
 
$
170,509
   
$
28,525
   
$
254,050
   
$
60,877
   
$
19,448
   
$
41,377
   
$
5,026
   
$
39,681
   
$
619,493
 
 
The Bank had $3.3 million in performing loans identified as TDRs at September 30, 2018, that were not classified as special mention or substandard.

The following table represents the internally assigned grades as of December 31, 2017, by type of loan (in thousands):
 
 
 
One-to-
four family
   
Home
equity
   
Commercial
and multifamily
   
Construction
and land
   
Manufactured
homes
   
Floating
homes
   
Other
consumer
   
Commercial
business
   
Total
 
Grade:
                                                     
Pass
 
$
153,793
   
$
27,493
   
$
199,887
   
$
61,390
   
$
16,877
   
$
29,120
   
$
4,708
   
$
39,089
   
$
532,357
 
Watch
   
244
     
     
9,683
     
     
     
     
     
827
     
10,754
 
Special Mention
   
137
     
     
357
     
     
     
     
     
784
     
1,278
 
Substandard
   
3,243
     
886
     
1,342
     
92
     
234
     
     
194
     
129
     
6,120
 
Doubtful
   
     
     
     
     
     
     
     
     
 
Loss
   
     
     
     
     
     
     
     
     
 
Total
 
$
157,417
   
$
28,379
   
$
211,269
   
$
61,482
   
$
17,111
   
$
29,120
   
$
4,902
   
$
40,829
   
$
550,509
 

14

Table of Contents
Nonaccrual and Past Due Loans.  Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are automatically placed on nonaccrual once the loan is 90 days past due or sooner if, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory authorities.

The following table presents the recorded investment in nonaccrual loans as of September 30, 2018, and December 31, 2017, by type of loan (in thousands):
 
 
 
September 30,
2018
   
December 31,
2017
 
One-to-four family
 
$
824
   
$
791
 
Home equity
   
384
     
722
 
Commercial and multifamily
   
539
     
201
 
Construction and land
   
76
     
92
 
Manufactured homes
   
223
     
206
 
Floating homes
   
     
 
Other consumer
   
4
     
8
 
Commercial business
   
334
     
129
 
Total
 
$
2,384
   
$
2,149
 

The following table represents the aging of the recorded investment in past due loans as of September 30, 2018, by type of loan (in thousands):
 
 
 
30-59 Days
Past Due
   
60-89 Days
Past Due
   
90 Days
and Greater
Past Due
   
Total Past
Due
   
Current
   
Total Loans
 
One-to-four family
 
$
   
$
222
   
$
419
   
$
641
   
$
169,868
   
$
170,509
 
Home equity
   
49
     
66
     
305
     
420
     
28,105
     
28,525
 
Commercial and multifamily
   
671
     
     
353
     
1,024
     
253,026
     
254,050
 
Construction and land
   
     
     
     
     
60,877
     
60,877
 
Manufactured homes
   
     
6
     
205
     
211
     
19,237
     
19,448
 
Floating homes
   
     
     
     
     
41,377
     
41,377
 
Other consumer
   
8
     
1
     
     
9
     
5,017
     
5,026
 
Commercial business
   
323
     
67
     
     
390
     
39,291
     
39,681
 
Total
 
$
1,051
   
$
362
   
$
1,282
   
$
2,695
   
$
616,798
   
$
619,493
 
 
The following table represents the aging of the recorded investment in past due loans as of December 31, 2017, by type of loan (in thousands):
 
 
 
30-59 Days
Past Due
   
60-89 Days
Past Due
   
90 Days
and Greater
Past Due
   
Total Past
Due
   
Current
   
Total Loans
 
One-to-four family
 
$
2,092
   
$
1,819
   
$
727
   
$
4,638
   
$
152,779
   
$
157,417
 
Home equity
   
521
     
5
     
633
     
1,159
     
27,220
     
28,379
 
Commercial and multifamily
   
313
     
     
     
313
     
210,956
     
211,269
 
Construction and land
   
51
     
     
92
     
143
     
61,339
     
61,482
 
Manufactured homes
   
185
     
50
     
197
     
432
     
16,679
     
17,111
 
Floating homes
   
     
     
     
     
29,120
     
29,120
 
Other consumer
   
15
     
     
     
15
     
4,887
     
4,902
 
Commercial business
   
400
     
     
     
400
     
40,429
     
40,829
 
Total
 
$
3,577
   
$
1,874
   
$
1,649
   
$
7,100
   
$
543,409
   
$
550,509
 

15

Table of Contents
Nonperforming Loans.  Loans are considered nonperforming when they are placed on nonaccrual and/or when they are considered to be nonperforming troubled debt restructurings ("TDRs") and/or when they are 90 days or greater past due and still accruing interest.  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 has granted the borrower a concession of some kind.  Nonperforming TDRs include TDRs that do not have sufficient payment history (typically greater than six months) to be considered performing.

The following table represents the credit risk profile of our loan portfolio based on payment activity as of September 30, 2018, by type of loan (in thousands):
 
 
 
One-to-four
family
   
Home
equity
   
Commercial
and
multifamily
   
Construction
and land
   
Manufactured
homes
   
Floating
homes
   
Other
consumer
   
Commercial
business
   
Total
 
Performing
 
$
169,640
   
$
28,141
   
$
253,511
   
$
60,801
   
$
19,225
   
$
41,377
   
$
5,022
   
$
39,264
   
$
616,981
 
Nonperforming
   
869
     
384
     
539
     
76
     
223
     
     
4
     
417
     
2,512
 
Total
 
$
170,509
   
$
28,525
   
$
254,050
   
$
60,877
   
$
19,448
   
$
41,377
   
$
5,026
   
$
39,681
   
$
619,493
 
 
The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2017, by type of loan (in thousands):
 
 
 
One-to-four
family
   
Home
equity
   
Commercial
and
multifamily
   
Construction
and land
   
Manufactured
homes
   
Floating
homes
   
Other
consumer
   
Commercial
business
   
Total
 
Performing
 
$
156,580
   
$
27,657
   
$
211,068
   
$
61,390
   
$
16,905
   
$
29,120