Note 4. Loans Receivable, Net

Loans receivable, net at June 30, 2015 and December 31, 2014 consisted of the following (in thousands):


	June 30, 2015			December 31, 2014
Real estate:
One-to-four family	$	747,962		$	737,889
Commercial real estate, multi family and land		698,286			649,951
Residential construction		52,428			47,552
Consumer		192,351			199,349
Commercial and industrial		111,229			83,946

Total loans		1,802,256			1,718,687
Loans in process		(16,073	)		(16,731	)
Deferred origination costs, net		3,230			3,207
Allowance for loan losses		(16,534	)		(16,317	)

Loans receivable, net	$	1,772,879		$	1,688,846

At June 30, 2015 and December 31, 2014, loans in the amount of $20,905,000 and $18,307,000, respectively, were three or more months delinquent or in the process of foreclosure and the Company was not accruing interest income on these loans. 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 recorded investment in mortgage and consumer loans collateralized by residential real estate which are in the process of foreclosure amounted to $3,320,000 at June 30, 2015. The amount of foreclosed residential real estate property held by the Company was $3,313,000 at June 30, 2015.

The Company defines an impaired loan as all non-accrual commercial real estate, multi-family, land, construction and commercial loans in excess of $250,000. Impaired loans also include all loans modified as troubled debt restructurings. At June 30, 2015, the impaired loan portfolio totaled $43,558,000 for which there was a specific allocation in the allowance for loan losses of $2,106,000. 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. The average balance of impaired loans for the three and six months ended June 30, 2015 was $42,584,000 and $39,764,000, respectively and $42,835,000 and $42,402,000 respectively, for the same prior year periods.

An analysis of the allowance for loan losses for the three and six months ended June 30, 2015 and 2014 is as follows (in thousands):


	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Balance at beginning of period	$	16,419		$	20,934		$	16,317		$	20,930
Provision charged to operations		300			275			675			805
Charge-offs		(331	)		(419	)		(689	)		(1,158	)
Recoveries		146			146			231			359

Balance at end of period	$	16,534		$	20,936		$	16,534		$	20,936

The following table presents an analysis of the allowance for loan losses for the three months ended June 30, 2015 and 2014 and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2015 and December 31, 2014 (in thousands):


	Residential Real Estate			Commercial Real Estate			Consumer			Commercial and Industrial			Unallocated			Total
For the three months ended June 30, 2015
Allowance for loan losses:
Balance at beginning of period	$	4,206		$	9,300		$	1,063		$	767		$	1,083		$	16,419
Provision (benefit) charged to operations		(608	)		(65	)		81			918			(26	)		300
Charge-offs		(68	)		(15	)		(248	)		—			—			(331	)
Recoveries		80			9			56			1			—			146

Balance at end of period	$	3,610		$	9,229		$	952		$	1,686		$	1,057		$	16,534

For the three months ended June 30, 2014
Allowance for loan losses:
Balance at beginning of period	$	4,290		$	11,413		$	1,369		$	1,044		$	2,818		$	20,934
Provision (benefit) charged to operations		207			(337	)		80			128			197			275
Charge-offs		(205	)		—			(204	)		(10	)		—			(419	)
Recoveries		105			1			39			1			—			146

Balance at end of period	$	4,397		$	11,077		$	1,284		$	1,163		$	3,015		$	20,936

For the six months ended June 30, 2015
Allowance for loan losses:
Balance at beginning of period	$	4,291		$	8,935		$	1,146		$	863		$	1,082		$	16,317
Provision (benefit) charged to operations		(682	)		388			175			819			(25	)		675
Charge-offs		(123	)		(103	)		(463	)		—			—			(689	)
Recoveries		124			9			94			4			—			231

Balance at end of period	$	3,610		$	9,229		$	952		$	1,686		$	1,057		$	16,534

For the six months ended June 30, 2014
Allowance for loan losses:
Balance at beginning of period	$	4,859		$	10,371		$	1,360		$	1,383		$	2,957		$	20,930
Provision (benefit) charged to operations		25			697			196			(171	)		58			805
Charge-offs		(795	)		—			(313	)		(50	)		—			(1,158	)
Recoveries		308			9			41			1			—			359

Balance at end of period	$	4,397		$	11,077		$	1,284		$	1,163		$	3,015		$	20,936

June 30, 2015
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	33		$	1,721		$	—		$	320		$	—		$	2,074
Collectively evaluated for impairment		3,577			7,508			952			1,366			1,057			14,460

Total ending allowance balance	$	3,610		$	9,229		$	952		$	1,686		$	1,057		$	16,534

Loans:
Loans individually evaluated for impairment	$	12,935		$	27,045		$	2,328		$	1,250		$	—		$	43,558
Loans collectively evaluated for impairment		787,455			671,241			190,023			109,979			—			1,758,698

Total ending loan balance	$	800,390		$	698,286		$	192,351		$	111,229		$	—		$	1,802,256


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

A summary of impaired loans at June 30, 2015 and December 31, 2014 is as follows (in thousands):


	June 30, 2015		December 31, 2014
Impaired loans with no allocated allowance for loan losses	$	32,218	$	26,487
Impaired loans with allocated allowance for loan losses		11,340		10,492

	$	43,558	$	36,979

Amount of the allowance for loan losses allocated	$	2,106	$	2,161

At June 30, 2015, impaired loans include troubled debt restructuring loans of $31,450,000 of which $27,618,000 were performing in accordance with their restructured terms for a minimum of six months and were accruing interest. 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.

The summary of loans individually evaluated for impairment by loan portfolio segment as of June 30, 2015 and December 31, 2014 and for the three months ended June 30, 2015 and 2014 follows (in thousands):


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
As of June 30, 2015
With no related allowance recorded:
Residential real estate	$	13,094	$	12,674	$	—
Commercial real estate		16,591		16,513		—
Consumer		2,813		2,328		—
Commercial and industrial		703		703		—

	$	33,201	$	32,218	$	—

With an allowance recorded:
Residential real estate	$	295	$	261	$	65
Commercial real estate		10,592		10,532		1,721
Consumer		—		—		—
Commercial and industrial		547		547		320

	$	11,434	$	11,340	$	2,106

As of December 31, 2014
With no related allowance recorded:
Residential real estate	$	12,351	$	11,931	$	—
Commercial real estate		12,174		12,142		—
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		9,023		9,023		1,741
Consumer		521		521		332
Commercial and industrial		—		—		—

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


	Three months ended June 30,
	2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	13,724	$	144	$	17,707	$	169
Commercial real estate		15,182		97		8,046		20
Consumer		2,255		30		2,141		20
Commercial and industrial		707		—		276		3

	$	31,868	$	271	$	28,170	$	212

With an allowance recorded:
Residential real estate	$	263	$	3	$	1,259	$	15
Commercial real estate		10,087		19		12,721		26
Consumer		—		—		685		11
Commercial and industrial		366		2		—		—

	$	10,716	$	24	$	14,665	$	52


	Six months ended June 30,
	2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	12,775	$	294	$	17,608	$	317
Commercial real estate		13,626		169		7,526		70
Consumer		2,201		59		2,161		41
Commercial and industrial		709		—		277		5

	$	29,311	$	522	$	27,572	$	433

With an allowance recorded:
Residential real estate	$	262	$	6	$	1,264	$	31
Commercial real estate		10,008		42		12,888		63
Consumer		—		—		678		21
Commercial and industrial		183		2		—		—

	$	10,453	$	50	$	14,830	$	115

The following table presents the recorded investment in non-accrual loans by loan portfolio segment as of June 30, 2015 and December 31, 2014 (in thousands):


	June 30, 2015		December 31, 2014
Residential real estate	$	4,288	$	3,115
Commercial real estate		14,601		12,758
Consumer		1,901		1,877
Commercial and industrial		115		557

	$	20,905	$	18,307

The following table presents the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by loan portfolio segment (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
June 30, 2015
Residential real estate	$	4,797	$	1,846	$	3,204	$	9,847	$	790,543	$	800,390
Commercial real estate		1,374		—		14,601		15,975		682,311		698,286
Consumer		263		323		1,608		2,194		190,157		192,351
Commercial and industrial		—		—		115		115		111,114		111,229

	$	6,434	$	2,169	$	19,528	$	28,131	$	1,774,125	$	1,802,256

December 31, 2014
Residential real estate	$	7,365	$	1,695	$	1,619	$	10,679	$	774,762	$	785,441
Commercial real estate		119		—		12,758		12,877		637,074		649,951
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

The Company categorizes all commercial 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 rated loans. As of June 30, 2015 and December 31, 2014, and based on the most recent analysis performed, the risk category of loans by loan portfolio segment is as follows (in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2015
Commercial real estate	$	650,776	$	24,264	$	23,246	$	—	$	698,286
Commercial and industrial		106,551		1,867		2,811		—		111,229

	$	757,327	$	26,131	$	26,057	$	—	$	809,515

December 31, 2014
Commercial real estate	$	611,987	$	12,684	$	25,280	$	—	$	649,951
Commercial and industrial		82,693		173		1,080		—		83,946

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

For residential, consumer and small business 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 June 30, 2015 and December 31, 2014 (in thousands):


	Residential Real Estate
	Residential		Consumer
June 30, 2105
Performing	$	796,102	$	190,450
Non-performing		4,288		1,901

	$	800,390	$	192,351

December 31, 2014
Performing	$	782,326	$	197,472
Non-performing		3,115		1,877

	$	785,441	$	199,349

The Company classifies certain loans as troubled debt restructurings when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term, the capitalization of past due amounts and/or the restructuring of scheduled principal payments. Included in the non-accrual loan total at June 30, 2015 and December 31, 2014 were $3,832,000 and $2,031,000, respectively, of troubled debt restructurings. At June 30, 2015 and December 31, 2014, the Company has allocated $482,000 and $419,000, respectively, of specific reserves to loans that 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 restructurings which are accruing at June 30, 2015 and December 31, 2014, which totaled $27,618,000 and $21,462,000, respectively. In the second quarter of 2015, the Bank restructured a commercial real estate loan with an outstanding balance of $3.9 million by extending the term and lowering the monthly repayment amount. The interest rate was unchanged. Troubled debt restructurings are considered in the allowance for loan losses similar to other impaired loans.

The following table presents information about troubled debt restructurings which occurred during the three and six months ended June 30, 2015 and 2014, and troubled debt restructurings modified within the previous year and which defaulted during the three and six months ended June 30, 2015 and 2014 (dollars in thousands):


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended June 30, 2015
Troubled Debt Restructurings:
Residential real estate	2	$	268	$	231
Commercial real estate	1		3,939		3,939
Consumer	4		259		243


	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Six months ended June 30, 2015
Troubled Debt Restructurings:
Residential real estate	4	$	517	$	480
Commercial real estate	3		6,033		5,944
Consumer	8		395		379


	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None


	Number of Loans	Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended June 30, 2014
Troubled Debt Restructurings:
Residential real estate	1	$	358	$	358
Consumer	3		93		97


	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None


	Number of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
Six months ended June 30, 2014
Troubled Debt Restructurings:
Residential real estate		4	$	882	$	805
Consumer		5		168		171


	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None