3. LOANS

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

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Residential mortgage	$	469,865		16.45	%	$	466,760		20.74	%
Multifamily mortgage		1,444,334		50.59			1,080,256		48.00
Commercial mortgage		399,592		14.00			308,491		13.71
Commercial loans		456,611		15.99			308,743		13.72
Construction loans		1,409		0.05			5,998		0.27
Home equity lines of credit		50,370		1.76			50,141		2.23
Consumer loans, including fixed
rate home equity loans		32,563		1.14			28,040		1.25
Other loans		483		0.02			1,838		0.08
Total loans	$	2,855,227		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 September 30, 2015 and December 31, 2014:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Primary residential mortgage	$	481,788		16.88	%	$	480,149		21.37	%
Home equity lines of credit		50,528		1.77			50,302		2.24
Junior lien loan on residence		11,320		0.40			11,808		0.52
Multifamily property		1,444,334		50.62			1,080,256		48.07
Owner-occupied commercial real estate		149,470		5.24			105,446		4.69
Investment commercial real estate		559,386		19.61			405,771		18.06
Commercial and industrial		122,758		4.30			81,362		3.62
Secured by farmland/agricultural
production		182		0.01			364		0.02
Commercial construction loans		150		0.01			4,715		0.21
Consumer and other loans		33,235		1.16			27,084		1.20
Total loans	$	2,853,151		100.00	%	$	2,247,257		100.00	%
Net deferred fees		2,076					3,010
Total loans including net deferred costs	$	2,855,227				$	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 (ALLL) as of September 30, 2015 and December 31, 2014:

	September 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	$	8,670	$	256	$	473,118	$	2,178	$	481,788	$	2,434
Home equity lines
of credit		299		44		50,229		113		50,528		157
Junior lien loan
on residence		194		—		11,126		71		11,320		71
Multifamily
property		—		—		1,444,334		9,167		1,444,334		9,167
Owner-occupied
commercial
real estate		1,301		—		148,169		2,643		149,470		2,643
Investment
commercial
real estate		11,519		63		547,867		8,109		559,386		8,172
Commercial and
industrial		241		142		122,517		1,485		122,758		1,627
Secured by
farmland and
agricultural
production		—		—		182		2		182		2
Commercial
construction		—		—		150		2		150		2
Consumer and
other		—		—		33,235		99		33,235		99
Total ALLL	$	22,224	$	505	$	2,830,927	$	23,869	$	2,853,151	$	24,374

	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 $7.6 million at September 30, 2015 and $6.9 million at December 31, 2014. Impaired loans also include performing TDR loans of $14.6 million at September 30, 2015 and $13.6 million at December 31, 2014. At September 30, 2015, the allowance allocated to TDR loans totaled $498 thousand of which $222 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 September 30, 2015. The Company has not committed to lend additional amounts as of September 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 September 30, 2015 and December 31, 2014 (The average impaired loans on the following tables represent year to date impaired loans.):

	September 30, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	8,073	$	6,908	$	—	$	5,250
Owner-occupied commercial real estate		1,478		1,301		—		1,407
Investment commercial real estate		10,258		10,262		—		10,356
Commercial and industrial		99		99		—		132
Home equity lines of credit		204		201		—		197
Junior lien loan on residence		329		194		—		156
Consumer and other		—		—		—		1
Total loans with no related allowance	$	20,441	$	18,965	$	—	$	17,499
With related allowance recorded:
Primary residential mortgage	$	1,806	$	1,762	$	256	$	1,568
Investment commercial real estate		1,273		1,257		63		1,270
Commercial and industrial		179		142		142		146
Home equity lines of credit		98		98		44		1
Total loans with related allowance	$	3,356	$	3,259	$	505	$	2,985
Total loans individually evaluated for
impairment	$	23,797	$	22,224	$	505	$	20,484

	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 three and nine months ended September 30, 2015 and 2014, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three and nine months ended September 30, 2015 and 2014.

Loans held for sale, at lower of cost or fair value at September 30, 2015, represents loan participations that the Company has the intent to sell. The Company expects sale price to approximate recorded investment.

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 September 30, 2015 and December 31, 2014:

	September 30, 2015
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	5,232	$	—
Home equity lines of credit		299		—
Junior lien loan on residence		134		—
Owner-occupied commercial real estate		1,301		—
Investment commercial real estate		408		—
Commercial and industrial		241		—
Total	$	7,615	$	—

	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 September 30, 2015 and December 31, 2014 by class of loans, excluding nonaccrual loans:

	September 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	$	1,041	$	196	$	—	$	1,237
Home equity lines of credit		274		—		—		274
Owner-occupied commercial real estate		226		—		—		226
Investment commercial real estate		690		—		—		690
Commercial and industrial		227		94		—		321
Total	$	2,458	$	290	$	—	$	2,748

	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 the Credit Administration and/or Credit Underwriting department for all loans $500,000 and over. Loans between $250,000 and $500,000 are evaluated annually, on a limited review basis, by either the Credit Department or a designated portfolio manager with the Chief Credit Officer or the Chief Credit Administration Officer. The Company contracts with an independent loan review firm to perform an annual review of the loan portfolio. The scope of the engagement must include coverage on an annual basis of at least 70% by dollar amount outstanding of the commercial loan portfolio. The review also includes recent new loans with balances or commitments of $500,000 or greater that were booked subsequent to the prior audit, and all criticized and classified loans on a periodic basis. 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 September 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	$	471,377	$	1,342	$	9,069	$	—
Home equity lines of credit		50,229		—		299		—
Junior lien loan on residence		11,126		—		194		—
Multifamily property		1,435,360		7,759		1,215		—
Owner-occupied commercial real estate		143,519		938		5,013		—
Investment commercial real estate		523,950		9,482		25,954		—
Commercial and industrial		116,560		5,957		241		—
Farmland		182		—		—		—
Commercial construction		—		150		—		—
Consumer and other loans		33,235		—		—		—
Total	$	2,785,538	$	25,628	$	41,985	$	—

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 September 30, 2015, $22.2 million of substandard and special mention loans were also considered impaired 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 September 30, 2015 is summarized below:

	July 1,										September 30,
	2015							Provision			2015
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,409	$	(218	)	$	4	$	239		$	2,434
Home equity lines of credit		113		—			—		44			157
Junior lien loan on residence		73		—			10		(12	)		71
Multifamily property		8,623		—			—		544			9,167
Owner-occupied commercial real estate		2,286		—			—		357			2,643
Investment commercial real estate		7,779		(16	)		4		405			8,172
Commercial and industrial		1,589		—			22		16			1,627
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		—			2
Consumer and other loans		93		(1	)		—		7			99
Total ALLL	$	22,969	$	(235	)	$	40	$	1,600		$	24,374

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

	January 1,										September 30,
	2015							Provision			2015
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,923	$	(329	)	$	74	$	(234	)	$	2,434
Home equity lines of credit		156		(110	)		1		110			157
Junior lien loan on residence		109		—			48		(86	)		71
Multifamily property		8,983		—			—		184			9,167
Owner-occupied commercial real estate		1,547		—			11		1,085			2,643
Investment commercial real estate		4,751		(16	)		14		3,423			8,172
Commercial and industrial		880		(7	)		68		686			1,627
Secured by farmland and agricultural production		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other loans		96		(22	)		12		13			99
Total ALLL	$	19,480	$	(484	)	$	228	$	5,150		$	24,374

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

	July 1,										September 30,
	2014							Provision			2014
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	3,002	$	(105	)	$	—	$	24		$	2,921
Home equity lines of credit		176		24			—		(53	)		147
Junior lien loan on residence		148		—			30		(56	)		122
Multifamily property		6,288		—			—		1,152			7,440
Owner-occupied commercial real estate		1,839		(25	)		—		65			1,879
Investment commercial real estate		4,597		—			4		(64	)		4,537
Agricultural production loans		2		—			—		(2	)		—
Commercial and industrial		1,041		—			21		76			1,138
Secured by farmland		2		—			—		—			2
Commercial construction		33		—			—		(1	)		32
Consumer and other loans		76		(5	)		1		9			81
Total ALLL	$	17,204	$	(111	)	$	56	$	1,150		$	18,299

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

	January 1,										September 30,
	2014							Provision			2014
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,361	$	(150	)	$	—	$	710		$	2,921
Home equity lines of credit		181		—			—		(34	)		147
Junior lien loan on residence		156		(1	)		74		(107	)		122
Multifamily property		4,003		—			—		3,437			7,440
Owner-occupied commercial real estate		2,563		(670	)		80		(94	)		1,879
Investment commercial real estate		5,083		—			12		(558	)		4,537
Commercial and industrial		825		(97	)		54		356			1,138
Secured by farmland		3		—			—		(1	)		2
Commercial construction		120		—			—		(88	)		32
Consumer and other loans		78		(7	)		6		4			81
Total ALLL	$	15,373	$	(925	)	$	226	$	3,625		$	18,299

Troubled Debt Restructurings:

The Company has allocated $498 thousand and $892 thousand of specific reserves on TDRs to customers whose loan terms have been modified in TDRs as of September 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 TDRs.

During the three and nine month period ended September 30, 2015, the terms of certain loans were modified as TDRs. 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 TDRs that occurred during the three month period ended September 30, 2015:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		5	$	1,645	$	1,645
Home equity line of credit		1		98		98
Junior lien loan on residence		1		60		60
Total		7	$	1,803	$	1,803

The following table presents loans by class modified as TDRs that occurred during the nine month period ended September 30, 2015:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		7	$	1,870	$	1,870
Home equity line of credit		1		98		98
Junior lien loan on residence		1		60		60
Owner-occupied commercial real estate		1		767		767
Total		10	$	2,795	$	2,795

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

The following table presents loans by class modified as TDRs that occurred during the three month period ended September 30, 2014:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		3	$	772	$	772
Total		3	$	772	$	772

The following table presents loans by class modified as TDRs that occurred during the nine month period ended September 30, 2014:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		5	$	1,374	$	1,374
Investment commercial real estate		2		2,787		2,787
Total		7	$	4,161	$	4,161

The following table presents loans by class modified as TDRs for which there was a payment default, within twelve months of modification, during the three month period ended September 30, 2015:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	133
Total		1	$	133

The following table presents loans by class modified as TDRs for which there was a payment default, within twelve months of modification, during the nine month period ended September 30, 2015:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		2	$	530
Total		2	$	530

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

The following table presents loans by class modified as TDRs for which there was a payment default, within twelve months of modification, during the nine month period ended September 30, 2014:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	54
Total		1	$	54

The above loan defaults did not have a material impact on the allowance for loan losses for the periods ended as of September 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.