3. LOANS

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

			% of Total					% of Total
(Dollars in thousands)	2015		Loans			2014		Loans
Residential mortgage	$	470,869		16.16	%	$	466,760		20.74	%
Multifamily mortgage		1,416,775		48.63			1,080,256		48.00
Commercial mortgage		413,118		14.18			308,491		13.71
Commercial loans		512,886		17.60			308,743		13.72
Construction loans		1,401		0.05			5,998		0.27
Home equity lines of credit		52,649		1.81			50,141		2.23
Consumer loans, including fixed
rate home equity loans		45,044		1.55			28,040		1.25
Other loans		500		0.02			1,838		0.08
Total loans	$	2,913,242		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 December 31:

			% of Total					% of Total
(Dollars in thousands)	2015		Loans			2014		Loans
Primary residential mortgage	$	483,085		16.59	%	$	480,149		21.37	%
Home equity lines of credit		52,804		1.81			50,302		2.24
Junior lien loan on residence		11,503		0.39			11,808		0.52
Multifamily property		1,416,775		48.66			1,080,256		48.07
Owner-occupied commercial real estate		176,276		6.05			105,446		4.69
Investment commercial real estate		568,849		19.54			405,771		18.06
Commercial and industrial		154,295		5.30			81,362		3.62
Farmland/Agricultural production		179		0.01			364		0.02
Commercial construction		151		0.01			4,715		0.21
Consumer and other		47,635		1.64			27,084		1.20
Total loans	$	2,911,552		100.00	%	$	2,247,257		100.00	%
Net deferred costs		1,690					3,010
Total loans including net deferred costs	$	2,913,242				$	2,250,267

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.

Consistent with the Company's balance sheet management strategy, $82.2 million of performing multifamily mortgages were reclassified to loans held for sale as of December 31, 2015. The Company no longer has the intent to hold these loans. These loans are carried at lower of cost or fair value.

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)	2015			2014
Balance, beginning of year	$	4,518		$	2,216
New loans		1,747			4,302
Repayments		(1,985	)		(1,129	)
Loans with individuals no longer considered related parties		—			(871	)
Balance, at end of year	$	4,280		$	4,518

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, 2015 and 2014:

December 31, 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		ALLL
Primary residential
mortgage	$	9,752	$	291	$	473,333	$	2,006	$	483,085	$	2,297
Home equity lines
of credit		254		—		52,550		86		52,804		86
Junior lien loan
on residence		176		—		11,327		66		11,503		66
Multifamily
property		—		—		1,416,775		11,813		1,416,775		11,813
Owner-occupied
commercial
real estate		1,272		—		175,004		1,679		176,276		1,679
Investment
commercial
real estate		11,482		61		557,367		7,529		568,849		7,590
Commercial and
industrial		171		138		154,124		2,071		154,295		2,209
Secured by
farmland and
agricultural
production		—		—		179		2		179		2
Commercial
construction		—		—		151		2		151		2
Consumer and
other		—		—		47,635		112		47,635		112
Total ALLL	$	23,107	$	490	$	2,888,445	$	25,366	$	2,911,552	$	25,856

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

Impaired loans include nonaccrual loans of $6.7 million at December 31, 2015 and $6.9 million at December 31, 2014. Impaired loans also include performing troubled debt restructured loans of $16.2 million at December 31, 2015 and $13.6 million at December 31, 2014. At December 31, 2015, the allowance allocated to troubled debt restructured loans totaled $441thousand of which $162 thousand was allocated to nonaccrual loans. At December 31, 2014, the allowance allocated to troubled debt restructured loans totaled $892 thousand of which $204 thousand was allocated to nonaccrual loans. All accruing troubled debt restructured loans were paying in accordance with restructured terms as of December 31, 2015. The Company has not committed to lend additional amounts as of December 31, 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 December 31, 2015 and 2014:

	December 31, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	8,998	$	7,782	$	—	$	5,683
Owner-occupied commercial real estate		1,460		1,272		—		1,379
Investment commercial real estate		11,099		10,233		—		10,330
Commercial and industrial		63		33		—		112
Home equity lines of credit		258		254		—		229
Junior lien loan on residence		219		176		—		166
Consumer and other		—		—		—		1
Total loans with no related allowance	$	22,097	$	19,750	$	—	$	17,900
With related allowance recorded:
Primary residential mortgage	$	2,090	$	1,970	$	291	$	1,894
Investment commercial real estate		1,249		1,249		61		1,266
Commercial and industrial		179		138		138		144
Total loans with related allowance	$	3,518	$	3,357	$	490	$	3,304
Total loans individually evaluated
for impairment	$	25,615	$	23,107	$	490	$	21,204

	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
Owner-occupied commercial real estate		—		—		—		—
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 during 2015, 2014 and 2013 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, 2015 and 2014:

	December 31, 2015
			Loans Past Due Over
			90 Days and Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	4,549	$	—
Home equity lines of credit		229		—
Junior lien loan on residence		118		—
Owner-occupied commercial real estate		1,272		—
Investment commercial real estate		408		—
Commercial and industrial		171		—
Consumer and other		—		—
Total	$	6,747	$	—

	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	$	—

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

	December 31, 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	$	1,214	$	157	$	—	$	1,371
Investment commercial real estate		772		—		—		772
Total	$	1,986	$	157	$	—	$	2,143

	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

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, as follows:

•

By credit underwriters for all loans $1,000,000 and over;

•

Through a limited review by Portfolio Managers with the Chief Credit Officer for loans in an amount of $500,000 up to $1,000,000;

•

By an external independent loan review firm for all new loans over $500,000 and for existing loans of $3,500,000 and over;

•

On a proportional basis by an external independent loan review firm for loans from $500,000 up to $3,499,999;

•

By an external independent loan review firm for all loans with a risk rating of criticized;

•

On a random sampling basis by an external independent loan review firm for loans under $500,000;

•

Whenever Management otherwise identifies a positive or negative trend or issue relating to a borrower.

The Company uses the following definitions for criticized 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, 2015 and 2014.

December 31, 2015

			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	471,859	$	1,332	$	9,894	$	—
Home equity lines of credit		52,550		—		254		—
Junior lien loan on residence		11,327		—		176		—
Multifamily property		1,407,856		7,718		1,201		—
Owner-occupied commercial real estate		170,420		928		4,928		—
Investment commercial real estate		536,479		6,217		26,153		—
Commercial and industrial		148,940		5,184		171		—
Secured by farmland		179		—		—		—
Agricultural production		—		—		—		—
Commercial construction		—		151		—		—
Consumer and other loans		47,635		—		—		—
Total	$	2,847,245	$	21,530	$	42,777	$	—

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	$	—

At December 31, 2015, $21.8 million of substandard loans were also considered impaired as compared to December 31, 2014, when $20.5 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, 2015, 2014 and 2013.

	January 1,										December 31,
	2015										2015
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,923	$	(638	)	$	80	$	(68	)	$	2,297
Home equity lines of credit		156		(210	)		2		138			86
Junior lien loan on residence		109		(13	)		62		(92	)		66
Multifamily property		8,983		—			—		2,830			11,813
Owner-occupied commercial
real estate		1,547		—			11		121			1,679
Investment commercial real estate		4,751		(16	)		18		2,837			7,590
Commercial and industrial		880		(73	)		81		1,321			2,209
Secured by farmland and agricultural		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other		96		(41	)		13		44			112
Total ALLL	$	19,480	$	(991	)	$	267	$	7,100		$	25,856

	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		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

Troubled Debt Restructurings: The Company has allocated $441 thousand and $892 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 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 period ended December 31, 2015, 2014 and 2013, 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; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2015:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		11	$	3,296	$	3,296
Junior Lien loan on residence		1		58		58
Investment commercial real estate		1		750		750
Total		13	$	4,104	$	4,104

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 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, 2015, 2014 and 2013.

There were no payment defaults on loans modified as troubled debt restructurings within twelve months of modification during the year ending December 31, 2015 and 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 defaults described above did not have a material impact on the allowance for loan losses during 2015, 2014 and 2013.

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.