3.	*LOANS*

The following table presents loans outstanding, by type of loan, as of December 31:

			% of Total					% of Total
(In thousands)	2014		Loans			2013		Loans
Residential mortgage	$	466,760		20.74	%	$	532,911		33.85	%
Commercial mortgage		1,388,747		61.71			831,997		52.85
Commercial loans		308,743		13.72			131,795		8.37
Construction loans		5,998		0.27			5,893		0.38
Home equity lines of credit		50,141		2.23			47,905		3.04
Consumer loans, including
fixed rate home equity loans		28,040		1.25			21,852		1.39
Other loans		1,838		0.08			1,848		0.12
Total loans	$	2,250,267		100.00	%	$	1,574,201		100.00	%

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on Federal call report codes. The following portfolio classes have been identified as of December 31:

			% of Total					% of Total
(In thousands)	2014		Loans			2013		Loans
Primary residential mortgage	$	480,149		21.37	%	$	546,827		34.82	%
Home equity lines of credit		50,302		2.24			47,905		3.05
Junior lien loan on residence		11,808		0.52			13,114		0.84
Multifamily property		1,080,256		48.07			541,503		34.48
Owner-occupied commercial
real estate		105,446		4.69			79,735		5.08
Investment commercial real estate		405,771		18.06			267,406		17.03
Commercial and industrial		81,362		3.62			51,638		3.29
Farmland/Agricultural production		364		0.01			197		0.01

Commercial construction		4,715		0.21			5,893		0.37
Consumer and other		27,084		1.20			16,212		1.03
Total loans	$	2,247,257		100.00	%	$	1,570,430		100.00	%
Net deferred fees		3,010					3,771
Total loans including
net deferred fees	$	2,250,267				$	1,574,201

At December 31, 2014 there was no longer an unamortized discount. Included in the totals above for December 31, 2013 is $396 thousand of unamortized discount.

In June of 2014, the Company sold $67 million of longer-duration, lower-coupon residential first mortgage loans as part of its strategy to de-emphasize residential first mortgage lending, while benefitting its liquidity and interest rate risk positions. Income for the twelve months ended December 31, 2014, included the gain on sale of $166 thousand.

In the ordinary course of business, the Company, through the Bank, may extend credit to officers, directors or their associates. These loans are subject to the Company's normal lending policy and Federal Reserve Bank Regulation O.

The following table shows the changes in loans to officers, directors or their associates:

(In thousands)	2014				2013
Balance, beginning of year	$	2,216		$	1,345
New loans		4,302			1,301
Repayments		(1,129	)		(430	)
Loans with individuals no longer considered related parties		(871	)		—
Balance, at end of year	$	4,518		$	2,216

The following tables present the loan balances by portfolio segment, based on impairment method, and the corresponding balances in the allowance for loan losses as of December 31, 2014 and 2013:

December 31, 2014

	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		to Loans		Collectively		to Loans
	Evaluated		Individually		Evaluated		Collectively				Total
	for		Evaluated for		for		Evaluated for		Total		Ending
(In thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALLL
Primary residential
mortgage	$	6,500	$	317	$	473,649	$	2,606	$	480,149	$	2,923
Home equity lines
of credit		210		—		50,092		156		50,302		156
Junior lien loan
on residence		164		—		11,644		109		11,808		109
Multifamily
property		—		—		1,080,256		8,983		1,080,256		8,983
Owner-occupied
commercial
real estate		1,674		—		103,772		1,547		105,446		1,547
Investment
commercial
real estate		11,653		489		394,118		4,262		405,771		4,751
Commercial and
industrial		248		149		81,114		731		81,362		880
Secured by
farmland and
agricultural
production		—		—		364		4		364		4
Commercial
construction		—		—		4,715		31		4,715		31
Consumer and
other		2		2		27,082		94		27,084		96
Total ALLL	$	20,451	$	957	$	2,226,806	$	18,523	$	2,247,257	$	19,480

December 31, 2013

	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		to Loans		Collectively		to Loans
	Evaluated		Individually		Evaluated		Collectively				Total
	for		Evaluated for		for		Evaluated for		Total		Ending
(In thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALLL
Primary residential
mortgage	$	3,691	$	126	$	543,136	$	2,235	$	546,827	$	2,361
Home equity
lines of credit		111		—		47,794		181		47,905		181
Junior lien loan
on residence		260		—		12,854		156		13,114		156
Multifamily
property		—		—		541,503		4,003		541,503		4,003
Owner-occupied
commercial
real estate		3,250		464		76,485		2,099		79,735		2,563
Investment
commercial
real estate		9,949		741		257,457		4,342		267,406		5,083
Commercial and
industrial		470		309		51,168		516		51,638		825
Secured by
farmland and
agricultural
production		—		—		197		3		197		3
Commercial
construction		—		—		5,893		120		5,893		120
Consumer and
other		13		13		16,199		65		16,212		78
Total ALLL	$	17,744	$	1,653	$	1,552,686	$	13,720	$	1,570,430	$	15,373

Impaired loans include nonaccrual loans of $6.9 million at December 31, 2014 and $6.6 million at December 31, 2013. Impaired loans also include performing troubled debt restructured loans of $13.6 million at December 31, 2014 and $11.1 million at December 31, 2013. At December 31, 2014, the allowance allocated to troubled debt restructured loans totaled $892 thousand of which $204 thousand was allocated to nonaccrual loans. At December 31, 2013, the allowance allocated to troubled debt restructured loans totaled $1.7 million of which $740 thousand was allocated to nonaccrual loans. All accruing troubled debt restructured loans were paying in accordance with restructured terms as of December 31, 2014. The Company has not committed to lend additional amounts as of December 31, 2014 to customers with outstanding loans that are classified as loan restructurings.

The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2014 and 2013:

	December 31, 2014

	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	5,264	$	4,635	$	—	$	3,543	$	37
Owner-occupied commercial real estate		1,809		1,674		—		2,626		24
Investment commercial real estate		5,423		5,423		—		5,512		76
Commercial and industrial		99		99		—		155		3
Home equity lines of credit		210		210		—		111		1
Junior lien loan on residence		293		164		—		224		3
Consumer and other		—		—		—		14		—
Total loans with no related allowance	$	13,098	$	12,205	$	—	$	12,185	$	144
With related allowance recorded:
Primary residential mortgage	$	2,138	$	1,865	$	317	$	1,361	$	14
Owner-occupied commercial real estate		—		—		—		—		—
Investment commercial real estate		6,230		6,230		489		5,927		71
Commercial and industrial		179		149		149		249		4
Junior lien loan on residence		—		—		—		—		—
Consumer and other		2		2		2		—		—
Total loans with related allowance	$	8,549	$	8,246	$	957	$	7,537	$	89
Total loans individually evaluated
for impairment	$	21,647	$	20,451	$	957	$	19,722	$	233

	December 31, 2013
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	3,777	$	2,984	$	—	$	4,813	$	55
Owner-occupied commercial real estate		1,346		1,193		—		1,893		36
Investment commercial real estate		5,000		5,000		—		314		4
Commercial and industrial		176		161		—		121		4
Home equity lines of credit		111		111		—		119		5
Junior lien loan on residence		370		260		—		312		5
Total loans with no related allowance	$	10,780	$	9,709	$	—	$	7,572	$	109
With related allowance recorded:
Primary residential mortgage	$	707	$	707	$	126	$	636	$	29
Owner-occupied commercial real estate		2,190		2,057		464		2,100		16
Investment commercial real estate		4,949		4,949		741		4,949		618
Commercial and industrial		323		309		309		269		4
Junior lien loan on residence		—		—		—		—		—
Commercial construction		13		13		13		—		—
Total loans with related allowance	$	8,182	$	8,035	$	1,653	$	7,954	$	667
Total loans individually evaluated
for impairment	$	18,962	$	17,744	$	1,653	$	15,526	$	776

Cash basis interest income recognized during 2014, 2013 and 2012 was not material.

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2014 and 2013:

	December 31, 2014

				Loans Past Due Over
				90 Days and Still
(In thousands)		Nonaccrual		Accruing Interest
Primary residential mortgage	$	4,128	$	—
Home equity lines of credit		210		—
Junior lien loan on residence		164		—
Owner-occupied commercial real estate		1,674		—
Investment commercial real estate		424		—
Commercial and industrial		248		—
Consumer and other		2		—
Total	$	6,850	$	—

	December 31, 2013

				Loans Past Due Over
				90 Days and Still
(In thousands)		Nonaccrual		Accruing Interest
Primary residential mortgage	$	2,641	$	—
Home equity lines of credit		111		—
Junior lien loan on residence		260		—
Owner-occupied commercial real estate		3,250		—
Commercial and industrial		355		—
Consumer and other		13		—
Total	$	6,630	$	—

The following tables present the recorded investment in past due loans as of December 31, 2014 and 2013 by class of loans, excluding nonaccrual loans:

	December 31, 2014
		30-59		60-89	Greater Than
		Days		Days	90 Days			Total
(In thousands)		Past Due		Past Due	Past Due			Past Due
Primary residential mortgage	$	1,102	$	403	$	—	$	1,505
Home equity lines of credit		99		—		—		99
Commercial construction		150		—		—		150
Consumer and other		1		—		—		1
Total	$	1,352	$	403	$	—	$	1,755

	December 31, 2013
		30-59		60-89	Greater Than
		Days		Days	90 Days			Total
(In thousands)		Past Due		Past Due	Past Due			Past Due
Primary residential mortgage	$	1,443	$	677	$	—	$	2,120
Home equity lines of credit		12		—		—		12
Owner-occupied commercial real estate		703		—		—		703
Investment commercial real estate		118		—		—		118
Total	$	2,276	$	677	$	—	$	2,953

Credit Quality Indicators:

The Company places all commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten. The credit risk rating is re-evaluated annually by credit underwriters for all loans $500,000 and over; annually through a limited review by Portfolio Managers with the Chief Credit Officer for loans in an amount of $250,000 up to $500,000; annually by an external independent loan review firm for all loans $3,500,000 and over, on a proportional basis by the review firm for loans from $500,000 up to $3,499,999, and on a random sampling basis by the review firm for loans under $500,000; or whenever Management otherwise identifies a positive or negative trend or issue relating to a borrower. The Company uses the following definitions for risk ratings:

Special Mention: Loans subject to special mention have a potential weakness that deserves Management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution's credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weakness inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

The table below presents, based on the most recent analysis performed, the risk category of loans by class of loans for December 31, 2014 and 2013.

December 31, 2014


			Special
(In thousands)	Pass		Mention		Substandard			Doubtful
Primary residential mortgage	$	471,219	$	1,366	$	7,564	$	—
Home equity lines of credit		50,092		—		210		—
Junior lien loan on residence		11,644		—		164		—
Multifamily property		1,078,944		490		822		—
Owner-occupied commercial real estate		99,432		473		5,541		—
Investment commercial real estate		372,865		11,648		21,258		—
Commercial and industrial		81,093		21		248		—
Secured by farmland		189		—		—		—
Agricultural production		175		—		—		—
Commercial construction		4,565		150		—		—
Consumer and other loans		27,082		—		2		—
Total	$	2,197,300	$	14,148	$	35,809	$	—

December 31, 2013


			Special
(In thousands)	Pass		Mention		Substandard			Doubtful
Primary residential mortgage	$	540,609	$	1,510	$	4,708	$	—
Home equity lines of credit		47,794		—		111		—
Junior lien loan on residence		12,854		—		260		—
Multifamily property		540,993		510		—		—
Owner-occupied commercial real estate		70,218		619		8,898		—
Investment commercial real estate		238,722		9,573		19,111		—
Commercial and industrial		51,144		23		471		—
Secured by farmland		197		—		—		—
Commercial construction		4,340		1,553		—		—
Consumer and other loans		15,106		837		269		—
Total	$	1,521,977	$	14,625	$	33,828	$	—

At December 31, 2014, $20.5 million of the special mention and the substandard loans were also considered impaired as compared to December 31, 2013, when $17.7 million of the special mention and the substandard loans were also considered impaired.

The tables below present a rollforward of the allowance for loan losses for the years ended December 31, 2014, 2013 and 2012.

	January 1,										December 31,
	2014										2014
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,361	$	(273	)	$	1	$	834		$	2,923
Home equity lines of credit		181		—			—		(25	)		156
Junior lien loan on residence		156		(1	)		103		(149	)		109
Multifamily property		4,003		—			—		4,980			8,983
Owner-occupied commercial
real estate		2,563		(669	)		106		(453	)		1,547
Investment commercial real estate		5,083		—			18		(350	)		4,751
Commercial and industrial		825		(123	)		85		93			880
Secured by farmland and agricultural
production		3		—			—		1			4
Commercial construction		120		—			—		(89	)		31
Consumer and other		78		(22	)		7		33			96
Total ALLL	$	15,373	$	(1,088	)	$	320	$	4,875		$	19,480

	January 1,										December 31,
	2013										2013
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	3,047	$	(611	)	$	48	$	(123	)	$	2,361
Home equity lines of credit		267		—			—		(86	)		181
Junior lien loan on residence		314		(346	)		17		171			156
Multifamily property		1,305		—			11		2,687			4,003
Owner-occupied commercial
real estate		2,509		—			77		(23	)		2,563
Investment commercial real estate		4,155		(56	)		26		958			5,083
Commercial and industrial		803		(16	)		64		(26	)		825
Secured by farmland		3		—			—		—			3
Commercial construction		240		—			1		(121	)		120
Consumer and other		92		(11	)		9		(12	)		78
Total ALLL	$	12,735	$	(1,040	)	$	253	$	3,425		$	15,373

	January 1,										December 31,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,414	$	(1,676	)	$	3	$	2,306		$	3,047
Home equity lines of credit		204		(91	)		—		154			267
Junior lien loan on residence		64		(57	)		6		301			314
Multifamily property		705		(492	)		—		1,092			1,305
Owner-occupied commercial
real estate		3,108		(4,047	)		299		3,149			2,509
Investment commercial real estate		4,181		(2,448	)		17		2,405			4,155
Agricultural production		1		—			—		(1	)		—
Commercial and industrial		1,291		(233	)		60		(315	)		803
Secured by farmland		—		—			—		3			3
Commercial construction		669		(72	)		—		(357	)		240
Consumer and other		78		(43	)		11		46			92
Unallocated		508		—			—		(508	)		—
Total ALLL	$	13,223	$	(9,159	)	$	396	$	8,275		$	12,735

Troubled Debt Restructurings: The Company has allocated $892 thousand and $1.6 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2014 and December 31, 2013, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ended December 31, 2014, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the followings: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2014:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		8	$	2,138	$	2,138
Investment commercial real estate		1		1,281		1,281
Total		9	$	3,419	$	3,419

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2013:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage	4	$	760	$	760
Investment commercial real estate	1		5,000		5,000
Total	5	$	5,760	$	5,760

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2012:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage	3	$	553	$	553
Junior lien on residence	1		274		274
Investment commercial real estate	1		2,648		2,648
Total	5	$	3,475	$	3,475

The identification of the troubled debt restructured loans did not have a significant impact on the allowance for loan losses. In addition, there were no charge-offs as a result of the classification of these loans as troubled debt restructuring during the years ended December 31, 2014, 2013 and 2012.

There were no payment defaults on loans modified as troubled debt restructurings within twelve months of modification during the year ending December 31, 2014.

The following table presents loans by class modified as troubled debt restructurings during the year ended December 31, 2013 for which there was a payment default during the same period:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage	1	$	59
Total	1	$	59

The following table presents loans by class modified as troubled debt restructurings during the year ended December 31, 2012 for which there was a payment default during the same period:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Junior lien on residence	1	$	240
Total	1	$	240

The defaults described above did not have a material impact on the allowance for loan losses during 2014, 2013 and 2012.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's internal underwriting policy. At the time a loan is restructured, the Bank performs a full re-underwriting analysis, which includes, at a minimum, obtaining current financial statements and tax returns, copies of all leases, and an updated independent appraisal of the property. A loan will continue to accrue interest if it can be reasonably determined that the borrower should be able to perform under the modified terms, that the loan has not been chronically delinquent (both to debt service and real estate taxes) or in nonaccrual status since its inception, and that there have been no charge-offs on the loan. Restructured loans with previous charge-offs would not accrue interest at the time of the troubled debt restructuring. At a minimum, six months of contractual payments would need to be made on a restructured loan before returning a loan to accrual status. Once a loan is classified as a TDR, the loan is reported as a TDR until the loan is paid in full, sold or charged-off. In rare circumstances, a loan may be removed from TDR status, if it meets the requirements of ASC 310-40-50-2.