(4) Loans Receivable, Net

A summary of loans receivable at December 31, 2014 and 2013 follows (in thousands):


	December 31,
	2014			2013
Real estate mortgage:
One-to-four family	$	737,889		$	750,585
Commercial real estate, multi-family and land		649,951			528,945
Residential construction		47,552			30,821

		1,435,392			1,310,351
Consumer		199,349			200,683
Commercial and industrial		83,946			60,545

Total loans		1,718,687			1,571,579

Loans in process		(16,731	)		(12,715	)
Deferred origination costs, net		3,207			3,526
Allowance for loan losses		(16,317	)		(20,930	)

		(29,841	)		(30,119	)

	$	1,688,846		$	1,541,460

The Bank’s mortgage loans are pledged to secure FHLB advances.

At December 31, 2014, 2013 and 2012 loans in the amount of $18,307,000, $45,360,000, and $43,374,000, respectively, were three or more months delinquent or in the process of foreclosure and the Company was not accruing interest income on these loans and has reversed previously accrued interest. There were no loans ninety days or greater past due and still accruing interest. Non-accrual loans include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified impaired loans.

The Company defines an impaired loan as all non-accrual commercial real estate, multi-family, land, construction and commercial and industrial loans in excess of $250,000. Impaired loans also include all loans modified as troubled debt restructurings. At December 31, 2014, the impaired loan portfolio totaled $36,979,000 for which there was a specific allocation in the allowance for loan losses of $2,161,000. At December 31, 2013, the impaired loan portfolio totaled $39,903,000 for which there was a specific allocation in the allowance for loan losses of $3,647,000. The average balance of impaired loans for the years ended December 31, 2014, 2013 and 2012 was $41,023,000, $38,587,000, and $36,574,000, respectively. If interest income on non-accrual loans and impaired loans had been current in accordance with their original terms, approximately $1,630,000, $2,513,000 and $2,370,000, of interest income for the years ended December 31, 2014, 2013 and 2012, respectively, would have been recorded. At December 31, 2014, there were no commitments to lend additional funds to borrowers whose loans are in non-accrual status.

An analysis of the allowance for loan losses for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):


	Years Ended December 31,
	2014			2013			2012
Balance at beginning of year	$	20,930		$	20,510		$	18,230
Provision charged to operations		2,630			2,800			7,900
Charge-offs		(7,827	)		(3,521	)		(7,084	)
Recoveries		584			1,141			1,464

Balance at end of year	$	16,317		$	20,930		$	20,510

The following table presents an analysis of the allowance for loan losses for the years ended December 31, 2014 and 2013, the balance in the allowance for loan loses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2014 and 2013 (in thousands):


	Residential Real Estate			Commercial Real Estate			Consumer			Commercial and Industrial			Unallocated			Total
For the year ended December 31, 2014
Allowance for loan losses:
Balance at beginning of year	$	4,859		$	10,371		$	1,360		$	1,383		$	2,957		$	20,930
Provision (benefit) charged to operations		5,862			(1,122	)		211			(446	)		(1,875	)(A)		2,630
Charge-offs		(6,955	)		(323	)		(471	)		(78	)		—			(7,827	)
Recoveries		525			9			46			4			—			584

Balance at end of year	$	4,291		$	8,935		$	1,146		$	863		$	1,082		$	16,317

For the year ended December 31, 2013
Allowance for loan losses:
Balance at beginning of year	$	5,241		$	8,937		$	2,264		$	1,348		$	2,720		$	20,510
Provision (benefit) charged to operations		1,236			1,383			(297	)		241			237			2,800
Charge-offs		(2,444	)		—			(842	)		(235	)		—			(3,521	)
Recoveries		826			51			235			29			—			1,141

Balance at end of year	$	4,859		$	10,371		$	1,360		$	1,383		$	2,957		$	20,930

December 31, 2014
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	88		$	1,741		$	332		$	—		$	—		$	2,161
Collectively evaluated for impairment		4,203			7,194			814			863			1,082			14,156

Total ending allowance balance	$	4,291		$	8,935		$	1,146		$	863		$	1,082		$	16,317

Loans:
Loans individually evaluated for impairment	$	12,879		$	21,165		$	2,221		$	714		$	—		$	36,979
Loans collectively evaluated for impairment		772,562			628,786			197,128			83,232			—			1,681,708

Total ending loan balance	$	785,441		$	649,951		$	199,349		$	83,946		$	—		$	1,718,687

December 31, 2013
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	2		$	3,612		$	33		$	—		$	—		$	3,647
Collectively evaluated for impairment		4,857			6,759			1,327			1,383			2,957			17,283

Total ending allowance balance	$	4,859		$	10,371		$	1,360		$	1,383		$	2,957		$	20,930

Loans:
Loans individually evaluated for impairment	$	18,192		$	17,643		$	2,961		$	1,107		$	—		$	39,903
Loans collectively evaluated for impairment		763,214			511,302			197,722			59,438			—			1,531,676

Total ending loan balance	$	781,406		$	528,945		$	200,683		$	60,545		$	—		$	1,571,579

(A)

The reduction in the unallocated portion of the allowance for loan losses is due to the improved risk profile of the loan portfolio and related credit metrics, and the lower level of uncertainty relating to future loan losses. As a result of the bulk sale of most non-performing residential loans, the total amount of non-performing loans decreased, non-performing loans as percent of total loans decreased, and the allowance for loan losses as a percent of total non-performing loans increased, as compared to December 31, 2013

A summary of impaired loans at December 31, 2014 and 2013 is as follows (in thousands):


	December 31,
	2014		2013
Year-end impaired loans with no allocated allowance for loan losses	$	26,487	$	24,457
Year-end impaired loans with allocated allowance for loan losses		10,492		15,446

	$	36,979	$	39,903

Amount of the allowance for loan losses allocated	$	2,161	$	3,647

At December 31, 2014, impaired loans include troubled debt restructuring loans of $23,493,000 of which $21,462,000 were performing in accordance with their restructured terms and were accruing interest. At December 31, 2013, impaired loans include troubled debt restructuring loans of $31,119,000 of which $21,456,000 were performing in accordance with their restructured terms and were accruing interest.

The summary of loans individually evaluated for impairment by class of loans as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013 follows (in thousands):


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
As of December 31, 2014
With no related allowance recorded:
Residential real estate	$	12,351	$	11,931	$	—
Commercial real estate:
Commercial		12,174		12,142		—
Construction and land		—		—		—
Consumer		2,243		1,700		—
Commercial and industrial		714		714		—

	$	27,482	$	26,487	$	—

With an allowance recorded:
Residential real estate	$	948	$	948	$	88
Commercial real estate:
Commercial		9,023		9,023		1,741
Construction and land		—		—		—
Consumer		521		521		332
Commercial and industrial		—		—		—

	$	10,492	$	10,492	$	2,161


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
As of December 31, 2013
With no related allowance recorded:
Residential real estate	$	19,559	$	18,130	$	—
Commercial real estate:
Commercial		2,303		2,292		—
Construction and land		—		—		—
Consumer		3,435		2,928		—
Commercial and industrial		1,107		1,107		—

	$	26,404	$	24,457	$	—

With an allowance recorded:
Residential real estate	$	62	$	62	$	2
Commercial real estate:
Commercial		15,128		15,042		3,389
Construction and land		309		309		223
Consumer		33		33		33
Commercial and industrial		—		—		—

	$	15,532	$	15,446	$	3,647


	For the years ended of December 31,
	2014				2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	16,253	$	662	$	20,697	$	813
Commercial real estate:
Commercial		11,396		384		2,704		110
Construction and land		76		—		—		—
Consumer		1,982		96		3,425		124
Commercial and industrial		386		10		606		8

	$	30,093	$	1,152	$	27,432	$	1,055

With an allowance recorded:
Residential real estate	$	990	$	59	$	36	$	1
Commercial real estate:
Commercial		9,196		77		10,683		217
Construction and land		152		—		391		—
Consumer		592		48		45		2
Commercial and industrial		—		—		—		—

	$	10,930	$	184	$	11,155	$	220

The following table presents the recorded investment in non-accrual loans by class of loans as of December 31, 2014 and 2013 (in thousands). The decrease from the prior year was primarily due to the bulk sale of most non-performing residential and consumer mortgage loans with an aggregate carrying value of $23.1 million.


	December 31,
	2014		2013
Residential real estate:
Residential	$	3,115	$	28,213
Residential construction		—		—
Commercial real estate:
Commercial		12,558		11,995
Construction and land		200		309
Consumer		1,877		4,328
Commercial and industrial		557		515

	$	18,307	$	45,360

The following table presents the aging of the recorded investment in past due loans as of December 31, 2014 and 2013 by class of loans (in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2014
Residential real estate:
Residential	$	7,365	$	1,695	$	1,619	$	10,679	$	727,210	$	737,889
Residential construction		—		—		—		—		47,552		47,552
Commercial real estate:
Commercial		119		—		12,558		12,677		587,387		600,064
Construction and land		—		—		200		200		49,687		49,887
Consumer		845		232		1,833		2,910		196,439		199,349
Commercial and industrial		—		—		557		557		83,389		83,946

	$	8,329	$	1,927	$	16,767	$	27,023	$	1,691,664	$	1,718,687

December 31, 2013
Residential real estate:
Residential	$	6,304	$	2,634	$	25,296	$	34,234	$	716,350	$	750,584
Residential construction		195		—		—		195		30,626		30,821
Commercial real estate:
Commercial		985		849		9,217		11,051		491,817		502,868
Construction and land		—		—		309		309		25,769		26,078
Consumer		864		298		4,219		5,381		195,302		200,683
Commercial and industrial		—		—		515		515		60,030		60,545

	$	8,348	$	3,781	$	39,556	$	51,685	$	1,519,894	$	1,571,579

The Company categorizes all commercial and industrial, and commercial real estate loans, except for small business loans, into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as 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 loan or of the Bank’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 borrower 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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as Doubtful have all the weaknesses 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 related loans. Loans not rated are included in groups of homogeneous loans. As of December 31, 2014 and 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2014
Commercial real estate:
Commercial	$	562,756	$	12,684	$	24,624	$	—	$	600,064
Construction and land		49,231		—		656		—		49,887
Commercial and industrial		82,693		173		1,080		—		83,946

	$	694,680	$	12,857	$	26,360	$	—	$	733,897

December 31, 2013
Commercial real estate:
Commercial	$	471,435	$	—	$	30,576	$	857	$	502,868
Construction and land		25,018		—		1,059		—		26,077
Commercial and industrial		59,089		1,070		386		—		60,545

	$	555,542	$	1,070	$	32,021	$	857	$	589,490

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2014 and 2013 (in thousands):


	Residential Real Estate
	Residential		Residential construction		Consumer
December 31, 2014
Performing	$	734,774	$	47,552	$	197,472
Non-performing		3,115		—		1,877

	$	737,889	$	47,552	$	199,349

December 31, 2013
Performing	$	722,371	$	30,821	$	196,355
Non-performing		28,213		—		4,328

	$	750,584	$	30,821	$	200,683

The Company classifies certain loans as troubled debt restructurings (“TDR”) when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term and/or the capitalization of past due amounts. One-to-four family and consumer loans where the borrower’s debt is discharged in a bankruptcy filing are also considered troubled debt restructurings. For these loans, the Bank retains its security interest in the real estate collateral. Included in the non-accrual loan total at December 31, 2014, 2013 and 2012 were $2,031,000, $9,663,000 and $18,160,000, respectively, of troubled debt restructurings. At December 31, 2014, 2013 and 2012, the Company has allocated $419,000, $1,816,000 and $2,418,000, respectively, of specific reserves to loans which are classified as troubled debt restructurings. Non-accrual loans which become troubled debt restructurings are generally returned to accrual status after six months of performance. In addition to the troubled debt restructurings included in non-accrual loans, the Company also has loans classified as troubled debt restructuring which are accruing at December 31, 2014, 2013 and 2012 which totaled $21,462,000, $21,456,000 and $17,733,000, respectively. All troubled debt restructurings, regardless of payment status, are considered impaired loans and are individually evaluated as part of the determination of the allowance for loan losses.

The following table presents information about troubled debt restructurings which occurred during the years ended December 31, 2014 and 2013, and troubled debt restructurings modified within the previous year and which defaulted during the years ended December 31, 2014 and 2013 (dollars in thousands):


	Number of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
Year ended December 31, 2014
Troubled Debt Restructurings:
Residential real estate		10	$	2,313	$	1,901
Consumer		10		234		178

	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:
Consumer		1	$	40

	Number of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
Year ended December 31, 2013
Troubled Debt Restructurings:
Residential real estate		6	$	1,704	$	1,696
Consumer		12		601		439

	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:
Residential real estate		2	$	300
Consumer		1		12