3. LOANS

Loans outstanding, by general ledger classification, as of June 30, 2015 and December 31, 2014, consisted of the following:

			% of					% of
	June 30,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Residential mortgage	$	470,863		17.17	%	$	466,760		20.74	%
Multifamily mortgage		1,371,139		50.01			1,080,256		48.00
Commercial mortgage		375,440		13.69			308,491		13.71
Commercial loans		438,461		15.99			308,743		13.72
Construction loans		1,417		0.05			5,998		0.27
Home equity lines of credit		51,675		1.89			50,141		2.23
Consumer loans, including fixed
rate home equity loans		29,996		1.09			28,040		1.25
Other loans		2,947		0.11			1,838		0.08
Total loans	$	2,741,938		100.00	%	$	2,250,267		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 June 30, 2015 and December 31, 2014:

			% of					% of
	June 30,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Primary residential mortgage	$	482,765		17.62	%	$	480,149		21.37	%
Home equity lines of credit		51,832		1.89			50,302		2.24
Junior lien loan on residence		11,049		0.40			11,808		0.52
Multifamily property		1,371,139		50.05			1,080,256		48.07
Owner-occupied commercial real estate		126,926		4.63			105,446		4.69
Investment commercial real estate		534,870		19.53			405,771		18.06
Commercial and industrial		128,475		4.69			81,362		3.62
Secured by farmland/agricultural
production		183		0.01			364		0.02
Commercial construction loans		150		0.01			4,715		0.21
Consumer and other loans		32,058		1.17			27,084		1.20
Total loans	$	2,739,447		100.00	%	$	2,247,257		100.00	%
Net deferred fees		2,491					3,010
Total loans including net deferred costs	$	2,741,938				$	2,250,267

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses as of June 30, 2015 and December 31, 2014:

	June 30, 2015
	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		ALL
Primary residential
mortgage	$	7,256	$	255	$	475,509	$	2,154	$	482,765	$	2,409
Home equity lines
of credit		207		—		51,625		113		51,832		113
Junior lien loan
on residence		142		—		10,907		73		11,049		73
Multifamily
property		—		—		1,371,139		8,623		1,371,139		8,623
Owner-occupied
commercial
real estate		1,319		—		125,607		2,286		126,926		2,286
Investment
commercial
real estate		11,637		677		523,233		7,102		534,870		7,779
Commercial and
industrial		245		145		128,230		1,444		128,475		1,589
Secured by
farmland and
agricultural
production		—		—		183		2		183		2
Commercial
construction		—		—		150		2		150		2
Consumer and
other		—		—		32,058		93		32,058		93
Total ALLL	$	20,806	$	1,077	$	2,718,641	$	21,892	$	2,739,447	$	22,969

	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
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

Impaired loans include nonaccrual loans of $7.1 million at June 30, 2015 and $6.9 million at December 31, 2014. Impaired loans also include performing TDR loans of $13.7 million at June 30, 2015 and $13.6 million at December 31, 2014. At June 30, 2015, the allowance allocated to TDR loans totaled $1.0 million of which $159 thousand was allocated to nonaccrual loans. At December 31, 2014, the allowance allocated to TDR loans totaled $892 thousand of which $204 thousand was allocated to nonaccrual loans. All accruing TDR loans were paying in accordance with restructured terms as of June 30, 2015. The Company has not committed to lend additional amounts as of June 30, 2015 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 June 30, 2015 and December 31, 2014:

The average impaired loans on the following tables represent year to date impaired loans.

	June 30, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	6,782	$	5,580	$	—	$	4,691
Owner-occupied commercial real estate		1,497		1,319		—		1,455
Investment commercial real estate		5,734		5,423		—		5,413
Commercial and industrial		178		99		—		148
Home equity lines of credit		209		207		—		193
Junior lien loan on residence		528		142		—		144
Consumer and other		—		—		—		1
Total loans with no related allowance	$	14,928	$	12,770	$	—	$	12,045
With related allowance recorded:
Primary residential mortgage	$	1,781	$	1,676	$	255	$	1,688
Investment commercial real estate		6,222		6,214		677		6,223
Commercial and industrial		179		146		145		147
Total loans with related allowance	$	8,182	$	8,036	$	1,077	$	8,058
Total loans individually evaluated for
impairment	$	23,110	$	20,806	$	1,077	$	20,103

	December 31, 2014
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	5,264	$	4,635	$	—	$	3,543
Owner-occupied commercial real estate		1,809		1,674		—		2,626
Investment commercial real estate		5,423		5,423		—		5,512
Commercial and industrial		99		99		—		155
Home equity lines of credit		210		210		—		111
Junior lien loan on residence		293		164		—		224
Consumer and other		—		—		—		14
Total loans with no related allowance	$	13,098	$	12,205	$	—	$	12,185
With related allowance recorded:
Primary residential mortgage	$	2,138	$	1,865	$	317	$	1,361
Investment commercial real estate		6,230		6,230		489		5,927
Commercial and industrial		179		149		149		249
Consumer and other		2		2		2		—
Total loans with related allowance	$	8,549	$	8,246	$	957	$	7,537
Total loans individually evaluated for
impairment	$	21,647	$	20,451	$	957	$	19,722

Interest income recognized on impaired loans for the second quarter and six months ended June 30, 2015 and 2014, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three and six months ended June 30, 2015 and 2014.

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 June 30, 2015 and December 31, 2014:

	June 30, 2015
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	4,773	$	—
Home equity lines of credit		207		—
Junior lien loan on residence		142		—
Owner-occupied commercial real estate		1,319		—
Investment commercial real estate		425		—
Commercial and industrial		245		—
Total	$	7,111	$	—

	December 31, 2014
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		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	$	—

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans, excluding nonaccrual loans:

	June 30, 2015
		30-59		60-89	Greater Than
		Days		Days	90 Days			Total
(In thousands)		Past Due		Past Due	Past Due			Past Due
Primary residential mortgage	$	1,405	$	89	$	—	$	1,494
Owner-occupied commercial real estate		230		—		—		230
Commercial and industrial		20		—		—		20
Total	$	1,655	$	89	$	—	$	1,744

	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
Owner-occupied commercial real estate		150		—		—		150
Investment commercial real estate		1		—		—		1
Total	$	1,352	$	403	$	—	$	1,755

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 Corporation 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. As of June 30, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In thousands)	Pass		Mention		Substandard			Doubtful
Primary residential mortgage	$	473,756	$	1,352	$	7,657	$	—
Home equity lines of credit		51,626		—		206		—
Junior lien loan on residence		10,907		—		142		—
Multifamily property		1,369,856		480		803		—
Owner-occupied commercial real estate		121,508		334		5,084		—
Investment commercial real estate		500,674		9,657		24,539		—
Commercial and industrial		119,878		8,352		245		—
Farmland		183		—		—		—
Commercial construction		—		150		—		—
Consumer and other loans		32,058		—		—		—
Total	$	2,680,446	$	20,325	$	38,676	$	—

As of December 31, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			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		—
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	$	—

At June 30, 2015, $20.8 million of substandard and special mention loans were also considered impaired as compared to December 31, 2014, when $20.5 million were also impaired.

The activity in the allowance for loan losses for the three months ended June 30, 2015 is summarized below:

	April 1,										June 30,
	2015							Provision			2015
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,314	$	(68	)	$	4	$	159		$	2,409
Home equity lines of credit		97		(10	)		1		25			113
Junior lien loan on residence		71		—			10		(8	)		73
Multifamily property		8,738		—			—		(115	)		8,623
Owner-occupied commercial real estate		2,347		—			—		(61	)		2,286
Investment commercial real estate		6,135		—			4		1,640			7,779
Commercial and industrial		1,011		(7	)		21		564			1,589
Secured by farmland and agricultural production		3		—			—		(1	)		2
Commercial construction		23		—			—		(21	)		2
Consumer and other loans		77		(4	)		2		18			93
Total ALLL	$	20,816	$	(89	)	$	42	$	2,200		$	22,969

The activity in the allowance for loan losses for the six months ended June 30, 2015 is summarized below:

	January 1,										June 30,
	2015							Provision			2015
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,923	$	(111	)	$	70	$	(473	)	$	2,409
Home equity lines of credit		156		(110	)		1		66			113
Junior lien loan on residence		109		—			38		(74	)		73
Multifamily property		8,983		—			—		(360	)		8,623
Owner-occupied commercial real estate		1,547		—			11		728			2,286
Investment commercial real estate		4,751		—			10		3,018			7,779
Commercial and industrial		880		(7	)		46		670			1,589
Secured by farmland		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other loans		96		(21	)		12		6			93
Total ALLL	$	19,480	$	(249	)	$	188	$	3,550		$	22,969

The activity in the allowance for loan losses for the three months ended June 30, 2014 is summarized below:

	April 1,										June 30,
	2014							Provision			2014
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,462	$	(25	)	$	—	$	565		$	3,002
Home equity lines of credit		153		(24	)		—		47			176
Junior lien loan on residence		139		—			21		(12	)		148
Multifamily property		5,630		—			—		658			6,288
Owner-occupied commercial real estate		2,468		(572	)		80		(137	)		1,839
Investment commercial real estate		4,679		—			6		(88	)		4,597
Agricultural production loans		2		—			—		—			2
Commercial and industrial		938		(38	)		18		123			1,041
Secured by farmland and agricultural production		3		—			—		(1	)		2
Commercial construction		44		—			—		(11	)		33
Consumer and other loans		69		(1	)		2		6			76
Total ALLL	$	16,587	$	(660	)	$	127	$	1,150		$	17,204

The activity in the allowance for loan losses for the six months ended June 30, 2014 is summarized below:

	January 1,										June 30,
	2014							Provision			2014
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,361	$	(45	)	$	—	$	686		$	3,002
Home equity lines of credit		181		(24	)		—		19			176
Junior lien loan on residence		156		(1	)		44		(51	)		148
Multifamily property		4,003		—			—		2,285			6,288
Owner-occupied commercial real estate		2,563		(644	)		80		(160	)		1,839
Investment commercial real estate		5,083		—			8		(494	)		4,597
Agricultural productions loans		—		—			—		2			2
Commercial and industrial		825		(96	)		32		280			1,041
Secured by farmland		3		—			—		(1	)		2
Commercial construction		120		—			—		(87	)		33
Consumer and other loans		78		(3	)		5		(4	)		76
Total ALLL	$	15,373	$	(813	)	$	169	$	2,475		$	17,204

Troubled Debt Restructurings:

The Company has allocated $870 thousand and $688 thousand of specific reserves on accruing TDRs to customers whose loan terms have been modified in TDRs as of June 30, 2015 and December 31, 2014, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the six month period ended June 30, 2015, 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 following: a reduction of the stated interest rate of the loan; a deferral of scheduled payments with an extension of the maturity date; or some other modification or extension which would not be readily available in the market.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six month period ended June 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	2	$	225	$	225
Owner-occupied commercial real estate	1		767		767
Total	3	$	992	$	992

The identification of the troubled debt restructure loans did not have a significant impact on the allowance for loan losses.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month period ended June 30, 2014:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	1	$	414	$	414
Investment commercial real estate	1		1,580		1,580
Total	2	$	1,994	$	1,994

The following table presents loans by class modified as troubled debt restructurings that occurred during the six month period ended June 30, 2014:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	2	$	607	$	607
Investment commercial real estate	2		2,884		2,884
Total	4	$	3,491	$	3,491

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default, within twelve months of modification, during the three and six month period ended June 30, 2015:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		2	$	532
Total		2	$	532

There were no loans that were modified as troubled debt restructurings for which there was a payment default, within twelve months of modification, during the three months ended June 30, 2014.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default, within twelve months of modification, during the six month period ended June 30, 2014:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	55
Total		1	$	55

The above loan defaults did not have a material impact on the allowance for loan losses for the periods ended as of June 30, 2015 and 2014.

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, if applicable, and an updated independent appraisal of any 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 TDR. At a minimum, six months of contractual payments would need to be made on a restructured loan before returning a loan to accrual status.