3. LOANS

Loans outstanding, excluding those held for sale, by general ledger classification, as of March 31, 2016 and December 31, 2015, consisted of the following:

			% of				% of
	March 31,		Totals		December 31,		Total
(In thousands)	2016		Loans		2015		Loans
Residential mortgage	$	469,084		15.49%	$	470,869		16.16%
Multifamily mortgage		1,489,708		49.20		1,416,775		48.63
Commercial mortgage		414,677		13.70		413,118		14.18
Commercial loans		554,871		18.33		512,886		17.60
Construction loans		1,392		0.05		1,401		0.05
Home equity lines of credit		53,328		1.76		52,649		1.81
Consumer loans, including fixed
rate home equity loans		44,198		1.46		45,044		1.55
Other loans		443		0.01		500		0.02
Total loans	$	3,027,701		100.00%	$	2,913,242		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 March 31, 2016 and December 31, 2015:

			% of				% of
	March 31,		Totals		December 31,		Total
(In thousands)	2016		Loans		2015		Loans
Primary residential mortgage	$	499,734		16.52%	$	483,085		16.59%
Home equity lines of credit		53,481		1.77		52,804		1.81
Junior lien loan on residence		10,686		0.35		11,503		0.39
Multifamily property		1,489,708		49.22		1,416,775		48.66
Owner-occupied commercial real estate		163,495		5.40		176,276		6.05
Investment commercial real estate		587,213		19.41		568,849		19.54
Commercial and industrial		173,299		5.73		154,295		5.30
Secured by farmland/agricultural
production		177		0.01		179		0.01
Commercial construction loans		150		0.01		151		0.01
Consumer and other loans		47,894		1.58		47,635		1.64
Total loans	$	3,025,837		100.00%	$	2,911,552		100.00%
Net deferred costs		1,864				1,690
Total loans including net deferred costs	$	3,027,701			$	2,913,242

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 March 31, 2016 and December 31, 2015:

	March 31, 2016
	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	$	10,165	$	297	$	489,569	$	2,206	$	499,734	$	2,503
Home equity lines
of credit		153		—		53,328		133		53,481		133
Junior lien loan
on residence		171		—		10,515		13		10,686		13
Multifamily
property		—		—		1,489,708		11,631		1,489,708		11,631
Owner-occupied
commercial
real estate		1,264		—		162,231		1,683		163,495		1,683
Investment
commercial
real estate		11,446		58		575,767		8,469		587,213		8,527
Commercial and
industrial		136		136		173,163		2,555		173,299		2,691
Secured by
farmland and
agricultural
production		—		—		177		2		177		2
Commercial
construction		—		—		150		2		150		2
Consumer and
Other		—		—		47,894		136		47,894		136
Total ALLL	$	23,335	$	491	$	3,002,502	$	26,830	$	3,025,837	$	27,321

	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
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

Impaired loans include nonaccrual loans of $7.3 million at March 31, 2016 and $6.7 million at December 31, 2015. Impaired loans also include performing TDR loans of $15.8 million at March 31, 2016 and $16.2 million at December 31, 2015. At March 31, 2016, the allowance allocated to TDR loans totaled $491 thousand of which $160 thousand was allocated to nonaccrual loans. At December 31, 2015, the allowance allocated to TDR loans totaled $441 thousand of which $162 thousand was allocated to nonaccrual loans. All accruing TDR loans were paying in accordance with restructured terms as of March 31, 2016. The Company has not committed to lend additional amounts as of March 31, 2016 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 March 31, 2016 and December 31, 2015 (The average impaired loans on the following tables represent year to date impaired loans.):

	March 31, 2016
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	9,766	$	8,160	$	—	$	7,217
Owner-occupied commercial real estate		1,460		1,264		—		1,270
Investment commercial real estate		10,812		10,205		—		10,224

Home equity lines of credit		354		153		—		186
Junior lien loan on residence		622		171		—		320

Total loans with no related allowance	$	23,014	$	19,953	$	—	$	19,217
With related allowance recorded:
Primary residential mortgage	$	2,040	$	2,005	$	297	$	1,671
Investment commercial real estate		1,241		1,241		58		1,246
Commercial and industrial		179		136		136		148
Total loans with related allowance	$	3,460	$	3,382	$	491	$	3,065
Total loans individually evaluated for
impairment	$	26,474	$	23,335	$	491	$	22,282

	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

Interest income recognized on impaired loans for the three months ended March 31, 2016 and 2015, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three months ended March 31, 2016 and 2015.

Loans held for sale, at lower of cost or fair value at March 31, 2016, represents loans (including loan participations) that the Company has the intent to sell. The Company expects sale price to approximate recorded investment. During the quarter, proceeds for sale of loans held for sale, at lower of cost or fair value totaled $57.4 million. The sale included whole loans and participations. The Company recorded gain on sale of whole loans of $124 thousand. No loans were sold at a loss.

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 March 31, 2016 and December 31, 2015:

	March 31, 2016
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	5,226	$	—
Home equity lines of credit		129		—
Junior lien loan on residence		114		—
Owner-occupied commercial real estate		1,265		—
Investment commercial real estate		408		—
Commercial and industrial		136		—
Total	$	7,278	$	—

	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	$	—

The following tables present the aging of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015 by class of loans, excluding nonaccrual loans:

	March 31, 2016
		30-59		60-89	Greater Than
		Days		Days	90 Days			Total
(In thousands)		Past Due		Past Due	Past Due			Past Due
Primary residential mortgage	$	1,240	$	—	$	—	$	1,240
Home equity lines of credit		—		145		—		145
Consumer and other		—		8		—		8
Total	$	1,240	$	153	$	—	$	1,393

	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

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 and is subsequently 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 between $500,000 and $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 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 that are considered to be impaired are individually evaluated for potential loss and allowance adequacy. Loans not deemed impaired are collectively evaluated for potential loss and allowance adequacy. As of March 31, 2016, 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	$	488,749	$	679	$	10,306	$	—
Home equity lines of credit		53,328		—		153		—
Junior lien loan on residence		10,515		—		171		—
Multifamily property		1,480,843		7,677		1,188		—
Owner-occupied commercial real estate		157,713		917		4,865		—
Investment commercial real estate		549,068		6,147		31,998		—
Commercial and industrial		168,128		5,035		136		—
Farmland		177		—		—		—
Commercial construction		—		150		—		—
Consumer and other loans		47,894		—		—		—
Total	$	2,956,415	$	20,605	$	48,817	$	—

As of December 31, 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	$	471,859	$	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		—
Farmland		179		—		—		—
Agricultural production		—		—		—		—
Commercial construction		—		151		—		—
Consumer and other loans		47,635		—		—		—
Total	$	2,847,245	$	21,530	$	42,777	$	—

At March 31, 2016, $22.1 million of substandard and special mention loans were also considered impaired compared to December 31, 2015, when $21.8 million were also impaired.

The activity in the allowance for loan losses for the three months ended March 31, 2016 is summarized below:

	July 1,										March 31,
	2016							Provision			2016
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,297	$	(13	)	$	14	$	205		$	2,503
Home equity lines of credit		86		—			2		45			133
Junior lien loan on residence		66		—			17		(70	)		13
Multifamily property		11,813		—			—		(182	)		11,631
Owner-occupied commercial real estate		1,679		—			—		4			1,683
Investment commercial real estate		7,590		(258	)		2		1,193			8,527
Commercial and industrial		2,209		(3	)		4		481			2,691
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		—			2
Consumer and other loans		112		(1	)		1		24			136
Total ALLL	$	25,856	$	(275	)	$	40	$	1,700		$	27,321

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

	January 1,										March 31,
	2015							Provision			2015
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,923	$	(43	)	$	66	$	(632	)	$	2,314
Home equity lines of credit		156		(100	)		—		41			97
Junior lien loan on residence		109		—			28		(66	)		71
Multifamily property		8,983		—			—		(245	)		8,738
Owner-occupied commercial real estate		1,547		—			11		789			2,347
Investment commercial real estate		4,751		—			6		1,378			6,135
Commercial and industrial		880		—			25		106			1,011
Secured by farmland and agricultural production		4		—			—		(1	)		3
Commercial construction		31		—			—		(8	)		23
Consumer and other loans		96		(17	)		10		(12	)		77
Total ALLL	$	19,480	$	(160	)	$	146	$	1,350		$	20,816

Troubled Debt Restructurings:

The Company has allocated $491 thousand and $441 thousand of specific reserves on TDRs to customers whose loan terms have been modified in TDRs as of March 31, 2016 and December 31, 2015, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

During the three month period ended March 31, 2016, 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 March 31, 2016:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		2	$	1,133	$	1,133
Total		2	$	1,133	$	1,133

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

There were no new TDRs that occurred during the three month period ending March 31, 2015.

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 March 31, 2016 and March 31, 2015.

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 a loan may be considered for return to accrual status.