LOANS

9 Months Ended

Sep. 30, 2017

Receivables [Abstract]

LOANS

3. LOANS

Loans outstanding, excluding those held for sale, by general ledger classification, as of September 30, 2017 and December 31, 2016, consisted of the following:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2017		Loans			2016		Loans
Residential mortgage	$	602,775		16.44	%	$	527,370		15.92	%
Multifamily mortgage		1,441,852		39.32			1,459,594		44.07
Commercial mortgage		625,466		17.05			551,233		16.65
Commercial loans		845,831		23.06			636,714		19.23
Construction loans		—		—			1,405		0.04
Home equity lines of credit		68,787		1.88			65,682		1.98
Consumer loans, including fixed
rate home equity loans		81,671		2.23			69,654		2.10
Other loans		815		0.02			492		0.01
Total loans	$	3,667,197		100.00	%	$	3,312,144		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 September 30, 2017 and December 31, 2016:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2017		Loans			2016		Loans
Primary residential mortgage	$	631,632		17.23	%	$	557,970		16.86	%
Home equity lines of credit		68,787		1.88			65,683		1.98
Junior lien loan on residence		7,082		0.19			9,206		0.28
Multifamily property		1,441,852		39.34			1,459,594		44.09
Owner-occupied commercial real estate		253,605		6.92			176,123		5.32
Investment commercial real estate		876,282		23.91			752,258		22.73
Commercial and industrial		257,124		7.01			213,983		6.47
Lease Financing		36,184		0.99			—		—
Farmland/agricultural production		162		0.01			169		0.01
Commercial construction loans		93		0.01			1,497		0.04
Consumer and other loans		92,055		2.51			73,621		2.22
Total loans	$	3,664,858		100.00	%	$	3,310,104		100.00	%
Net deferred costs		2,339					2,040
Total loans including net deferred costs	$	3,667,197				$	3,312,144

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan and lease losses (ALLL) as of September 30, 2017 and December 31, 2016:

	September 30, 2017
	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	$	12,161	$	572	$	619,471	$	3,772	$	631,632	$	4,344
Home equity lines
of credit		27		—		68,760		229		68,787		229
Junior lien loan
on residence		98		—		6,984		13		7,082		13
Multifamily
property		—		—		1,441,852		11,246		1,441,852		11,246
Owner-occupied
commercial
real estate		1,576		—		252,029		2,270		253,605		2,270
Investment
commercial
real estate		11,130		205		865,152		11,752		876,282		11,957
Commercial and
industrial		54		54		257,070		5,181		257,124		5,235
Lease financing		—		—		36,184		275		36,184		275
Secured by
farmland and
agricultural
production		—		—		162		2		162		2
Commercial
construction		—		—		93		1		93		1
Consumer and
other		—		—		92,055		343		92,055		343
Total ALLL	$	25,046	$	831	$	3,639,812	$	35,084	$	3,664,858	$	35,915

	December 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		ALLL
Primary residential
mortgage	$	15,814	$	456	$	542,156	$	3,210	$	557,970	$	3,666
Home equity lines
of credit		53		—		65,630		233		65,683		233
Junior lien loan
on residence		229		—		8,977		16		9,206		16
Multifamily
Property		—		—		1,459,594		11,192		1,459,594		11,192
Owner-occupied
Commercial
real estate		1,486		—		174,637		1,774		176,123		1,774
Investment
commercial
real estate		11,335		214		740,923		10,695		752,258		10,909
Commercial and
Industrial		154		154		213,829		4,010		213,983		4,164
Secured by
farmland and
agricultural production
production		—		—		169		2		169		2
Commercial
construction		—		—		1,497		9		1,497		9
Consumer and
Other		—		—		73,621		243		73,621		243
Total ALLL	$	29,071	$	824	$	3,281,033	$	31,384	$	3,310,104	$	32,208

Impaired loans include nonaccrual loans of $15.4 million at September 30, 2017 and $11.3 million at December 31, 2016. Impaired loans also include performing TDR loans of $9.7 million at September 30, 2017 and $17.8 million at December 31, 2016. At September 30, 2017, the allowance allocated to TDR loans totaled $439 thousand, of which $184 thousand was allocated to nonaccrual loans. At December 31, 2016, the allowance allocated to TDR loans totaled $550 thousand of which $314 thousand was allocated to nonaccrual loans. All accruing TDR loans were paying in accordance with restructured terms as of September 30, 2017. The Company has not committed to lend additional amounts as of September 30, 2017 to customers with outstanding loans that are classified as TDR loans.

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2017 and December 31, 2016 (The average impaired loans on the following tables represent year to date impaired loans.):

	September 30, 2017
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	9,998	$	8,820	$	—	$	11,329
Owner-occupied commercial real estate		1,756		1,576		—		1,467
Investment commercial real estate		9,601		9,537		—		10,035
Home equity lines of credit		29		27		—		42
Junior lien loan on residence		156		98		—		96
Total loans with no related allowance	$	21,541	$	20,058	$	—	$	22,969
With related allowance recorded:
Primary residential mortgage	$	4,159	$	3,341	$	572	$	1,296
Investment commercial real estate		1,609		1,593		205		1,202
Commercial and industrial		110		54		54		79
Total loans with related allowance	$	5,878	$	4,988	$	831	$	2,577
Total loans individually evaluated for
Impairment	$	27,419	$	25,046	$	831	$	25,546

	December 31, 2016
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	16,015	$	14,090	$	—	$	10,038
Owner-occupied commercial real estate		1,597		1,486		—		1,450
Investment commercial real estate		9,711		9,711		—		9,974
Home equity lines of credit		56		53		—		143
Junior lien loan on residence		280		229		—		339
Total loans with no related allowance	$	27,659	$	25,569	$	—	$	21,944
With related allowance recorded:
Primary residential mortgage	$	1,787	$	1,724	$	456	$	1,678
Investment commercial real estate		1,640		1,624		214		1,642
Commercial and industrial		204		154		154		145
Total loans with related allowance	$	3,631	$	3,502	$	824	$	3,465
Total loans individually evaluated for
impairment	$	31,290	$	29,071	$	824	$	25,409

Interest income recognized on impaired loans for the quarters ended September 30, 2017 and 2016 was not material. The Company did not recognize any income on nonaccruing impaired loans for the three and nine months ended September 30, 2017 and 2016.

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 September 30, 2017 and December 31, 2016:

	September 30, 2017
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	8,318	$	—
Home equity lines of credit		6		—
Junior lien loan on residence		98		—
Owner-occupied commercial real estate		1,576		—
Investment commercial real estate		5,315		—
Commercial and industrial		54		—
Total	$	15,367	$	—

	December 31, 2016
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	9,071	$	—
Home equity lines of credit		30		—
Junior lien loan on residence		115		—
Owner-occupied commercial real estate		1,486		—
Investment commercial real estate		408		—
Commercial and industrial		154		—
Total	$	11,264	$	—

The following tables present the aging of the recorded investment in past due loans as of September 30, 2017 and December 31, 2016 by class of loans, excluding nonaccrual loans:

	September 30, 2017
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	589	$	—	$	—	$	589
Total	$	589	$	—	$	—	$	589

	December 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	$	620	$	480	$	—	$	1,100
Junior lien loan on residence		—		25		—		25
Owner-occupied commercial real estate		209		—		—		209
Commercial and industrial		22		—		—		22
Total	$	851	$	505	$	—	$	1,356

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, debt service capacity, 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 then annually based on set criteria in the loan policy.

In addition, the Bank has engaged an independent loan review firm to validate risk ratings and to ensure compliance with our policies and procedures. This review of the following types of loans is performed quarterly:

· All new relationships or new lending to existing relationships greater than $1,000,000;

· All criticized and classified rated borrowers with relationship exposure of more than $500,000;

· A large sample of borrowers with total relationship commitments in excess of $1,000,000;

· A random sample of borrowers with relationships less than $1,000,000;

· Any other credits requested by Bank senior management or a member of the Board of Directors and any borrower for which the reviewer determines a review is warranted based upon knowledge of the portfolio, local events, industry stresses etc.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Special Mention: These loans have a potential weakness that deserves Management’s close attention. If left uncorrected, the 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: These loans 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: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

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 September 30, 2017, 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	$	618,544	$	795	$	12,293	$	—
Home equity lines of credit		68,760		—		27		—
Junior lien loan on residence		6,984		—		98		—
Multifamily property		1,424,637		15,381		1,834		—
Owner-occupied commercial real estate		248,504		—		5,101		—
Investment commercial real estate		847,966		6,233		22,083		—
Commercial and industrial		249,323		6,991		810		—
Lease financing		36,184		—		—		—
Farmland		162		—		—		—
Commercial construction		—		93		—		—
Consumer and other loans		90,131		—		1,924		—
Total	$	3,591,195	$	29,493	$	44,170	$	—

As of December 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	$	541,359	$	660	$	15,951	$	—
Home equity lines of credit		65,630		—		53		—
Junior lien loan on residence		8,977		—		229		—
Multifamily property		1,456,328		2,867		399		—
Owner-occupied commercial real estate		170,851		—		5,272		—
Investment commercial real estate		724,203		5,116		22,939		—
Commercial and industrial		208,617		4,411		955		—
Secured by farmland and agricultural		169		—		—		—
Commercial construction		1,400		97		—		—
Consumer and other loans		73,621		—		—		—
Total	$	3,251,155	$	13,151	$	45,798	$	—

At September 30, 2017, $23.9 million of substandard loans were also considered impaired compared to December 31, 2016, when $27.9 million of substandard loans were also impaired.

The activity in the allowance for loan and lease losses for the three months ended September 30, 2017 is summarized below:

	July 1,										September 30,
	2017										2017
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	4,223	$	(261	)	$	59	$	323		$	4,344
Home equity lines of credit		211		—			2		16			229
Junior lien loan on residence		14		—			6		(7	)		13
Multifamily property		11,606		—			—		(360	)		11,246
Owner-occupied commercial real estate		2,147		(30	)		—		153			2,270
Investment commercial real estate		11,727		—			1		229			11,957
Commercial and industrial		5,333		—			9		(107	)		5,235
Lease financing		178		—			—		97			275
Secured by farmland and agricultural		2		—			—		—			2
Commercial construction		1		—			—		—			1
Consumer and other loans		309		(24	)		2		56			343
Total ALLL	$	35,751	$	(315	)	$	79	$	400		$	35,915

The activity in the allowance for loan and lease losses for the nine months ended September 30, 2017 is summarized below:

	January 1,										September 30,
	2017										2017
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	3,666	$	(591	)	$	128	$	1,141		$	4,344
Home equity lines of credit		233		(23	)		61		(42	)		229
Junior lien loan on residence		16		(57	)		19		35			13
Multifamily property		11,192		—			—		54			11,246
Owner-occupied commercial real estate		1,774		(30	)		—		526			2,270
Investment commercial real estate		10,909		—			23		1,025			11,957
Commercial and industrial		4,164		(25	)		61		1,035			5,235
Lease financing		—		—			—		275			275
Secured by farmland and agricultural		2		—			—		—			2
Commercial construction		9		—			—		(8	)		1
Consumer and other loans		243		(62	)		3		159			343
Total ALLL	$	32,208	$	(788	)	$	295	$	4,200		$	35,915

The activity in the allowance for loan and lease losses for the three months ended September 30, 2016 is summarized below:

	July 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,783	$	(729	)	$	4	$	972		$	3,030
Home equity lines of credit		223		—			3		(2	)		224
Junior lien loan on residence		19		—			2		(3	)		18
Multifamily property		11,639		—			—		204			11,843
Owner-occupied commercial real estate		1,733		—			—		90			1,823
Investment commercial real estate		9,621		—			2		231			9,854
Commercial and industrial		2,951		(4	)		8		613			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		1		—			—		3			4
Consumer and other loans		247		—			11		(8	)		250
Total ALLL	$	29,219	$	(733	)	$	30	$	2,100		$	30,616

The activity in the allowance for loan and lease losses for the nine months ended September 30, 2016 is summarized below:

	January 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,297	$	(1,027	)	$	25	$	1,735		$	3,030
Home equity lines of credit		86		(91	)		11		218			224
Junior lien loan on residence		66		—			72		(120	)		18
Multifamily property		11,813		—			—		30			11,843
Owner-occupied commercial real estate		1,679		—			—		144			1,823
Investment commercial real estate		7,590		(258	)		8		2,514			9,854
Commercial and industrial		2,209		(7	)		20		1,346			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		2			4
Consumer and other loans		112		(5	)		12		131			250
Total ALLL	$	25,856	$	(1,388	)	$	148	$	6,000		$	30,616

Troubled Debt Restructurings:

The Company has allocated $439 thousand and $550 thousand of specific reserves on TDRs to customers whose loan terms have been modified in TDRs as of September 30, 2017 and December 31, 2016, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

The terms of certain loans were modified as TDRs when one or a combination of the following occurred: 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.

No loans were modified as TDRs during the three-month period ended September 30, 2017.

The following table presents loans by class modified as TDRs during the nine-month period ended September 30, 2017:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		5	$	1,148	$	1,148
Total		5	$	1,148	$	1,148

The identification of the TDRs did not have a significant impact on the allowance for loan and lease losses.

The following table presents loans by class modified as TDRs during the three-month period ended September 30, 2016:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		1	$	368	$	368
Total		1	$	368	$	368

The following table presents loans by class modified as TDRs during the nine-month period ended September 30, 2016:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		7	$	4,924	$	4,924
Junior lien on residence		1		66		66
Investment commercial real estate		1		79		79
Total		9	$	5,069	$	5,069

There were no loans that were modified as TDRs for which there was a payment default, within twelve months of modification, during the three and nine months ended September 30, 2017 and 2016.

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. The modification of the terms of such loans may include one or more of the following: (1) a reduction of the stated interest rate of the loan to a rate that is lower than the current market rate for new debt with similar risk; (2) an extension of an interest only period for a predetermined period of time; (3) an extension of the maturity date; or (4) an extension of the amortization period over which future payments will be computed. 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 TDR. At a minimum, six months of contractual payments would need to be made on a restructured loan before returning it 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.