Loans Receivable, Net

9 Months Ended

Sep. 30, 2015

Receivables [Abstract]

Loans Receivable, Net

Note 5. Loans Receivable, Net

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

	September 30, 2015			December 31, 2014
Real estate:
One-to-four family	$	786,915		$	737,889
Commercial real estate, multi family and land		803,340			649,951
Residential construction		51,580			47,552
Consumer		194,306			199,349
Commercial and industrial		129,379			83,946
Total loans		1,965,520			1,718,687
Purchased credit-impaired (“PCI”) loans		1,019			—
Loans in process		(14,145	)		(16,731	)
Deferred origination costs, net		3,216			3,207
Allowance for loan losses		(16,638	)		(16,317	)
Loans receivable, net	$	1,938,972		$	1,688,846

At September 30, 2015 and December 31, 2014, loans in the amount of $24,394,000 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 $2,852,000 at September 30, 2015. The amount of foreclosed residential real estate property held by the Company was $3,104,000 at September 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 September 30, 2015, the impaired loan portfolio totaled $45,573,000 for which there was a specific allocation in the allowance for loan losses of $2,400,000. 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 nine months ended September 30, 2015 was $46,211,000 and $40,909,000, respectively and $41,749,000 and $42,162,000, respectively, for the same prior year periods.

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Balance at beginning of period	$	16,534		$	20,936		$	16,317		$	20,930
Provision charged to operations		300			1,000			975			1,805
Charge-offs		(211	)		(5,783	)		(900	)		(6,915	)
Recoveries		15			157			246			490
Balance at end of period	$	16,638		$	16,310		$	16,638		$	16,310

The following table presents an analysis of the allowance for loan losses for the three and nine months ended September 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 September 30, 2015 and December 31, 2014, excluding PCI loans (in thousands):

	Residential Real Estate			Commercial Real Estate			Consumer			Commercial and Industrial			Unallocated			Total
For the three months ended September 30, 2015
Allowance for loan losses:
Balance at beginning of period	$	3,610		$	9,229		$	952		$	1,686		$	1,057		$	16,534
Provision (benefit) charged to operations		1,602			(892	)		73			(101	)		(382	)		300
Charge-offs		(51	)		—			(101	)		(59	)		—			(211	)
Recoveries		—			10			3			2			—			15
Balance at end of period	$	5,161		$	8,347		$	927		$	1,528		$	675		$	16,638
For the three months ended September 30, 2014
Allowance for loan losses:
Balance at beginning of period	$	4,397		$	11,077		$	1,284		$	1,163		$	3,015		$	20,936
Provision (benefit) charged to operations		4,982			(2,510	)		173			(123	)		(1,522	)		1,000
Charge-offs		(5,424	)		(323	)		(35	)		(1	)		—			(5,783	)
Recoveries		152			—			4			1			—			157
Balance at end of period	$	4,107		$	8,244		$	1,426		$	1,040		$	1,493		$	16,310
For the nine months ended September 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		920			(504	)		249			717			(407	)		975
Charge-offs		(174	)		(103	)		(564	)		(59	)		—			(900	)
Recoveries		124			19			96			7			—			246
Balance at end of period	$	5,161		$	8,347		$	927		$	1,528		$	675		$	16,638
For the nine months ended September 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		5,007			(1,813	)		368			(293	)		(1,464	)		1,805
Charge-offs		(6,193	)		(323	)		(348	)		(51	)		—			(6,915	)
Recoveries		434			9			46			1			—			490
Balance at end of period	$	4,107		$	8,244		$	1,426		$	1,040		$	1,493		$	16,310
September 30, 2015
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	67		$	1,991		$	22		$	320		$	—		$	2,400
Collectively evaluated for impairment		5,094			6,356			905			1,208			675			14,238
Total ending allowance balance	$	5,161		$	8,347		$	927		$	1,528		$	675		$	16,638
Loans:
Loans individually evaluated for impairment	$	12,377		$	29,573		$	2,373		$	1,250		$	—		$	45,573
Loans collectively evaluated for impairment		826,118			773,767			191,933			128,129			—			1,919,947
Total ending loan balance	$	838,495		$	803,340		$	194,306		$	129,379		$	—		$	1,965,520
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 September 30, 2015 and December 31, 2014 is as follows, excluding PCI loans (in thousands):

	September 30, 2015		December 31, 2014
Impaired loans with no allocated allowance for loan losses	$	34,015	$	26,487
Impaired loans with allocated allowance for loan losses		11,558		10,492
	$	45,573	$	36,979
Amount of the allowance for loan losses allocated	$	2,400	$	2,161

At September 30, 2015, impaired loans include troubled debt restructuring loans of $30,754,000 of which $26,935,000 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 September 30, 2015 and December 31, 2014 and for the three months ended September 30, 2015 and 2014 follows, excluding PCI loans (in thousands):

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
As of September 30, 2015
With no related allowance recorded:
Residential real estate	$	12,536	$	12,117	$	—
Commercial real estate		19,095		18,992		—
Consumer		2,601		2,203		—
Commercial and industrial		703		703		—
	$	34,935	$	34,015	$	—
With an allowance recorded:
Residential real estate	$	294	$	260	$	67
Commercial real estate		10,578		10,581		1,991
Consumer		207		170		22
Commercial and industrial		547		547		320
	$	11,626	$	11,558	$	2,400
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 September 30,
	2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	12,580	$	141	$	17,328	$	159
Commercial real estate		17,931		84		11,186		69
Consumer		2,266		28		1,765		24
Commercial and industrial		703		3		276		3
	$	33,480	$	256	$	30,555	$	255
With an allowance recorded:
Residential real estate	$	260	$	2	$	1,462	$	13
Commercial real estate		10,635		—		9,140		25
Consumer		85		—		592		10
Commercial and industrial		547		—		—		—
	$	11,527	$	2	$	11,194	$	48
	Nine months ended September 30,
	2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	12,634	$	434	$	17,493	$	476
Commercial real estate		14,691		270		10,883		152
Consumer		2,222		87		2,043		65
Commercial and industrial		707		8		277		7
	$	30,254	$	799	$	30,696	$	700
With an allowance recorded:
Residential real estate	$	261	$	8	$	1,330	$	44
Commercial real estate		10,153		11		9,502		77
Consumer		28		1		634		31
Commercial and industrial		304		2		—		—
	$	10,746	$	22	$	11,466	$	152

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

	September 30, 2015		December 31, 2014
Residential real estate	$	5,481	$	3,115
Commercial real estate		17,057		12,758
Consumer		1,741		1,877
Commercial and industrial		115		557
	$	24,394	$	18,307

The following table presents the aging of the recorded investment in past due loans as of September 30, 2015 and December 31, 2014 by loan portfolio segment, excluding PCI 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
September 30, 2015
Residential real estate	$	5,169	$	1,793	$	4,322	$	11,284	$	827,211	$	838,495
Commercial real estate		816		—		17,057		17,873		785,467		803,340
Consumer		858		89		1,568		2,515		191,791		194,306
Commercial and industrial		—		—		115		115		129,264		129,379
	$	6,843	$	1,882	$	23,062	$	31,787	$	1,933,733	$	1,965,520
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 September 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, excluding PCI loans (in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2015
Commercial real estate	$	760,756	$	10,727	$	31,857	$	—	$	803,340
Commercial and industrial		127,175		808		1,396		—		129,379
	$	887,931	$	11,535	$	33,253	$	—	$	932,719
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 September 30, 2015 and December 31, 2014, excluding PCI loans (in thousands):

	Residential Real Estate
	Residential		Consumer
September 30, 2105
Performing	$	833,014	$	192,565
Non-performing		5,481		1,741
	$	838,495	$	194,306
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 September 30, 2015 and December 31, 2014 were $3,819,000 and $2,031,000, respectively, of troubled debt restructurings. At September 30, 2015 and December 31, 2014, the Company has allocated $587,000 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 September 30, 2015 and December 31, 2014, which totaled $26,935,000 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 nine months ended September 30, 2015 and 2014, and troubled debt restructurings modified within the previous year and which defaulted during the three and nine months ended September 30, 2015 and 2014 (dollars in thousands):

	Number of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
Three months ended September 30, 2015
Troubled Debt Restructurings:
Commercial real estate		1	$	63	$	63
Consumer		1		207		170
	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None
	Number of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
Nine months ended September 30, 2015
Troubled Debt Restructurings:
Residential real estate		4	$	509	$	472
Commercial real estate		4		6,095		5,944
Consumer		9		599		547
	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 September 30, 2014
Troubled Debt Restructurings:
Residential real estate		5	$	1,041	$	933
Consumer		4		51		9

	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None
	Number of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
Nine months ended September 30, 2014
Troubled Debt Restructurings:
Residential real estate		9	$	1,921	$	1,731
Consumer		9		221		178
	Number of Loans		Recorded Investment
Troubled Debt Restructurings
Which Subsequently Defaulted:		None		None

As part of the Colonial acquisition PCI loans were acquired at a discount primarily due to deteriorated credit quality. PCI loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired from Colonial at July 31, 2015 (in thousands):

	July 31, 2015
Contractually required principal and interest	$	3,263
Contractual cash flows not expected to be collected (non-accretable discount)		(2,012	)
Expected cash flows to be collected at acquisition		1,251
Interest component of expected cash flows (accretable yield)		(220	)
Fair value of acquired loans	$	1,031

The following table summarizes the changes in accretable yield for PCI loans during the three and nine months ended September 30, 2015 (in thousands):

	Three and Nine months ended September 30, 2015
Beginning balance	$	—
Acquisition		220
Accretion		(14	)
Reclassification from non-accretable difference		—
Ending balance	$	206