LOANS | 5 . LOANS Portfolio loans consist of the following: June 30, December 31, 2015 2014 (Dollars in thousands) Commercial loans Multifamily $ 69,485 $ 60,546 Nonresidential 148,025 121,595 Land 10,231 9,484 Construction 16,265 16,064 Secured 68,813 45,088 Unsecured 456 134 Total commercial loans 313,275 252,911 Residential mortgage loans One-to four-family 709,342 694,105 Construction 34,074 37,113 Total residential mortgage loans 743,416 731,218 Consumer loans Home equity 157,909 154,776 Auto 8,169 5,902 Marine 3,054 3,917 Recreational vehicle 12,611 14,054 Other 1,953 2,105 Total consumer loans 183,696 180,754 Total loans 1,240,387 1,164,883 Less: Allowance for loan losses 16,881 17,687 Deferred loan costs, net (962 ) (897 ) Total 15,919 16,790 Loans, net $ 1,224,468 $ 1,148,093 The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and are based on impairment method as of June 30, 2015 and December 31, 2014 and activity for the three and six months ended June 30, 2015 and 2014. Allowance For Loan Losses Commercial Loans Residential Loans Consumer Loans Total (Dollars in thousands) For the three months ended June 30, 2015 Beginning balance $ 5,945 $ 7,666 $ 3,610 $ 17,221 Provision (recovery) 1,015 (278 ) 16 753 Charge-offs (779 ) (328 ) (357 ) (1,464 ) Recoveries 208 22 141 371 Ending balance $ 6,389 $ 7,082 $ 3,410 $ 16,881 For the six months ended June 30, 2015 Beginning balance $ 5,690 $ 8,517 $ 3,480 $ 17,687 Provision (recovery) 1,173 (1,149 ) 545 569 Charge-offs (794 ) (494 ) (888 ) (2,176 ) Recoveries 320 208 273 801 Ending balance $ 6,389 $ 7,082 $ 3,410 $ 16,881 June 30, 2015 Period-end amount allocated to: Loans individually evaluated for impairment $ 673 $ 1,651 $ 761 $ 3,085 Loans collectively evaluated for impairment 5,716 5,431 2,649 13,796 Ending balance $ 6,389 $ 7,082 $ 3,410 $ 16,881 Period-end balances: Loans individually evaluated for impairment $ 13,592 $ 19,239 $ 11,023 $ 43,854 Loans collectively evaluated for impairment 299,683 724,177 172,673 1,196,533 Ending balance $ 313,275 $ 743,416 $ 183,696 $ 1,240,387 Allowance For Loan Losses Commercial Loans Residential Loans Consumer Loans Total (Dollars in thousands) For the three months ended June 30, 2014 Beginning balance $ 7,275 $ 9,337 $ 3,942 $ 20,554 Provision (recovery) (1,565 ) (201 ) 152 (1,614 ) Charge-offs (509 ) (236 ) (447 ) (1,192 ) Recoveries 318 55 143 516 Ending balance $ 5,519 $ 8,955 $ 3,790 $ 18,264 For the six months ended June 30, 2014 Beginning balance $ 6,984 $ 9,830 $ 4,302 $ 21,116 Provision (recovery) (1,075 ) (531 ) 25 (1,581 ) Charge-offs (951 ) (551 ) (854 ) (2,356 ) Recoveries 561 207 317 1,085 Ending balance $ 5,519 $ 8,955 $ 3,790 $ 18,264 December 31, 2014 Period-end amount allocated to: Loans individually evaluated for impairment $ 717 $ 1,751 $ 842 $ 3,310 Loans collectively evaluated for impairment 4,973 6,766 2,638 14,377 Ending balance $ 5,690 $ 8,517 $ 3,480 $ 17,687 Period-end balances: Loans individually evaluated for impairment $ 14,845 $ 19,209 $ 11,843 $ 45,897 Loans collectively evaluated for impairment 238,066 712,009 168,911 1,118,986 Ending balance $ 252,911 $ 731,218 $ 180,754 $ 1,164,883 The unpaid principal balance is the total amount of the loan that is due to Home Savings. The recorded investment includes the unpaid principal balance less any chargeoffs or partial chargeoffs applied to specific loans. The unpaid principal balance and the recorded investment both exclude accrued interest receivable and deferred loan costs, both of which are immaterial. The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on an analysis using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, estimated collateral values, general economic conditions in the market area and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Other loans not reviewed specifically by management are evaluated as a homogenous group of loans (generally single-family residential mortgage loans and all consumer credits except marine loans) using a loss factor applied to the outstanding loan balance to determine the level of reserve required. This loss factor consists of two components, a quantitative and a qualitative component. The quantitative component is based on a historical analysis of all charged-off loans, net of recovery. In determining the qualitative factors, consideration is given to such attributes as lending policies, economic conditions, nature and volume of the portfolio, management, loan quality trend, loan review, collateral value, concentrations and other external factors. At December 31, 2014, the Company evaluated two years of net charge-off history and applied the information to the current period. This component was combined with the qualitative component to arrive at the loss factor, which is applied to the outstanding principal balance by type of credit and internal risk grade applied to specific risk pools, plus specific loss allocations and adjustments for current events and conditions. As of June 30, 2015, the Company evaluated 11 quarters of net charge-off history and applied this information to the current period. This component is combined with the qualitative component to arrive at the loss factor, which is applied to the average outstanding balance of homogenous loans and is no longer being applied by internal risk grade. This change in methodology, which was made in the first quarter of 2015, did not have a material effect on the calculation of the allowance for loan losses. The change in methodology was made in order to facilitate technological improvements in the calculation of the allowance for loan loss. The following table presents loans individually evaluated for impairment by class of loans as of and for six months ended June 30, 2015: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 109 $ — $ — $ 64 $ 3 $ 3 Nonresidential 4,175 2,431 — 3,567 3 80 Land 3,922 496 — 523 — — Construction 1,126 88 — 276 — — Secured 3,892 3,700 — 3,702 — 1 Unsecured 1,357 — — — — 26 Total commercial loans 14,581 6,715 — 8,132 6 110 Residential mortgage loans One-to four-family 5,925 4,411 — 4,939 27 62 Construction — — — — — — Total residential mortgage loans 5,925 4,411 — 4,939 27 62 Consumer loans Home equity 1,940 1,388 — 1,586 9 24 Auto 30 22 — 47 — 1 Marine 510 284 — 221 2 12 Recreational vehicle 95 66 — 117 1 2 Other — — — 1 — — Total consumer loans 2,575 1,760 — 1,972 12 39 Total $ 23,081 $ 12,886 $ — $ 15,043 $ 45 $ 211 With a specific allowance recorded Commercial loans Multifamily $ 153 $ 85 $ 17 $ 31 $ — $ — Nonresidential 6,321 6,141 611 4,833 72 75 Land — — — — — — Construction 2,815 327 42 967 — — Secured 324 324 3 324 — — Unsecured — — — — — — Total commercial loans 9,613 6,877 673 6,155 72 75 Residential mortgage loans One-to four-family 14,828 14,828 1,651 14,524 280 302 Construction — — — — — — Total residential mortgage loans 14,828 14,828 1,651 14,524 280 302 Consumer loans Home equity 8,554 8,554 646 9,260 211 224 Auto 4 4 — 6 — — Marine — — — — — — Recreational vehicle 705 705 115 723 10 10 Other — — — — — — Total consumer loans 9,263 9,263 761 9,989 221 234 Total 33,704 30,968 3,085 30,668 573 611 Total impaired loans $ 56,785 $ 43,854 $ 3,085 $ 45,711 $ 618 $ 822 The following tables present loans individually evaluated for impairment by class of loans as of and for six months ended June 30, 2014: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 185 $ 86 $ — $ 347 $ — $ — Nonresidential 5,304 3,684 — 4,536 — 20 Land 3,958 532 — 498 — — Construction 1,741 739 — 824 — — Secured 3,945 3,708 — 3,948 — 2 Unsecured 3,783 — — — — 57 Total commercial loans 18,916 8,749 — 10,153 - 79 Residential mortgage loans One-to four-family 7,571 6,020 — 8,558 29 148 Construction — — — — — — Total residential mortgage loans 7,571 6,020 — 8,558 29 148 Consumer loans Home equity 2,509 1,998 — 4,517 3 46 Auto 94 79 — 57 — 5 Marine 156 156 — 159 — 5 Recreational vehicle 544 323 — 255 3 12 Other 6 6 — 2 — — Total consumer loans 3,309 2,562 — 4,990 6 68 Total $ 29,796 $ 17,331 $ — $ 23,701 $ 35 $ 295 With a specific allowance recorded Commercial loans Multifamily $ 73 $ 48 $ 6 $ 326 $ — $ — Nonresidential 1,865 1,385 78 1,015 2 7 Land — — — — — — Construction 3,436 1,811 202 2,140 — — Secured 324 324 3 162 — — Unsecured — — — — — — Total commercial loans 5,698 3,568 289 3,643 2 7 Residential mortgage loans One-to four-family 15,252 15,252 2,246 11,761 292 305 Construction — — — — — — Total residential mortgage loans 15,252 15,252 2,246 11,761 292 305 Consumer loans Home equity 10,348 10,160 949 7,568 246 260 Auto 8 8 — 4 — — Marine — — — — — — Recreational vehicle 761 761 141 743 11 11 Other — — — — — — Total consumer loans 11,117 10,929 1,090 8,315 257 271 Total 32,067 29,749 3,625 23,719 551 583 Total impaired loans $ 61,863 $ 47,080 $ 3,625 $ 47,420 $ 586 $ 878 The following table present loans individually evaluated for impairment by class of loans as of December 31, 2014: Impaired Loans (Dollars in thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With no specific allowance recorded Commercial loans Multifamily $ 185 $ 85 $ — Nonresidential 7,201 5,582 — Land 3,958 532 — Construction 1,126 188 — Secured 3,903 3,702 — Unsecured 3,258 — — Total commercial loans 19,631 10,089 — Residential mortgage loans One-to four-family 6,015 4,518 — Construction — — — Total residential mortgage loans 6,015 4,518 — Consumer loans Home equity 1,901 1,262 — Auto 47 37 — Marine 151 151 — Recreational vehicle 124 81 — Other — — — Total consumer loans 2,223 1,531 — Total $ 27,869 $ 16,138 $ — With a specific allowance recorded Commercial loans Multifamily $ 33 $ 8 $ 6 Nonresidential 3,944 3,561 615 Land — — — Construction 2,815 863 93 Secured 324 324 3 Unsecured — — — Total commercial loans 7,116 4,756 717 Residential mortgage loans One-to four-family 14,691 14,691 1,751 Construction — — — Total residential mortgage loans 14,691 14,691 1,751 Consumer loans Home equity 9,577 9,577 722 Auto 7 6 1 Marine — — — Recreational vehicle 729 729 119 Other — — — Total consumer loans 10,313 10,312 842 Total 32,120 29,759 3,310 Total impaired loans $ 59,989 $ 45,897 $ 3,310 The following table present loans individual evaluated for impairment by class of loans as of and for the three months ended June 30, 2015 Impaired Loans (Dollars in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 43 $ 1 $ 2 Nonresidential 2,441 2 41 Land 514 — — Construction 138 — — Secured 3,700 — — Unsecured — — 7 Total commercial loans 6,836 3 50 Residential mortgage loans One-to four-family 4,530 17 30 Construction — — — Total residential mortgage loans 4,530 17 30 Consumer loans Home equity 1,534 4 18 Auto 27 — — Marine 289 — 7 Recreational vehicle 68 1 1 Other — — — Total consumer loans 1,918 5 26 Total $ 13,284 $ 25 $ 106 With a specific allowance recorded Commercial loans Multifamily $ 43 $ — $ — Nonresidential 6,254 34 36 Land — — — Construction 595 — — Secured 324 — — Unsecured — — — Total commercial loans 7,216 34 36 Residential mortgage loans One-to four-family 14,712 142 146 Construction — — — Total residential mortgage loans 14,712 142 146 Consumer loans Home equity 8,905 108 114 Auto 5 — — Marine — — — Recreational vehicle 711 4 4 Other — — — Total consumer loans 9,621 112 118 Total 31,549 288 300 Total impaired loans $ 44,833 $ 313 $ 406 The following table present loans individual evaluated for impairment by class of loans as of and for the three months ended June 30, 2014 Impaired Loans (Dollars in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized With no specific allowance recorded Commercial loans Multifamily $ 88 $ — $ 1 Nonresidential 3,802 — 10 Land 510 — — Construction 690 — — Secured 3,710 — 1 Unsecured — 9 23 Total commercial loans 8,800 9 35 Residential mortgage loans One-to four-family 5,226 13 84 Construction — — — Total residential mortgage loans 5,226 13 84 Consumer loans Home equity 1,875 2 21 Auto 65 — 2 Marine 157 — 2 Recreational vehicle 195 1 4 Other 4 — — Total consumer loans 2,296 3 29 Total $ 16,322 $ 25 $ 148 With a specific allowance recorded Commercial loans Multifamily $ 567 $ — $ — Nonresidential 1,404 1 3 Land — — — Construction 2,026 — — Secured 324 — — Unsecured — — — Total commercial loans 4,321 1 3 Residential mortgage loans One-to four-family 15,742 145 148 Construction — — — Total residential mortgage loans 15,742 145 148 Consumer loans Home equity 10,399 124 131 Auto 9 — — Marine — — — Recreational vehicle 794 7 7 Other — — — Total consumer loans 11,202 131 138 Total 31,265 277 289 Total impaired loans $ 47,587 $ 302 $ 437 Home Savings reclassifies a collateralized mortgage loan and consumer loans secured by real estate to real estate owned and other repossessed assets once it has either obtained legal title to the real estate collateral or the borrower voluntarily conveys all interest in the real property to the Bank to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The table below presents loans that are in the process of foreclosure at June 30, 2015 and December 31, 2014 but legal title, deed in lieu of foreclosure or similar legal agreement to the property has not yet been obtained: June 30, 2015 December 31, 2014 Unpaid Principal Balance Recorded Investment Unpaid Principal Balance Recorded Investment (Dollars in thousands) (Dollars in thousands) Mortgage loans in process of foreclosure $ 2,176 $ 2,105 $ 1,714 $ 1,661 Consumer loans in process of foreclosure 1,035 846 707 489 The following table presents the recorded investment in nonaccrual and loans past due over 90 days and still on accrual by class of loans as of June 30, 2015: Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing As of June 30, 2015 Nonaccrual Loans past due over 90 days and still accruing (Dollars in thousands) Commercial loans Multifamily $ 85 $ — Nonresidential 5,637 — Land 496 — Construction 415 — Secured 4,016 — Unsecured — — Total commercial loans 10,649 — Residential mortgage loans One-to four-family 6,475 — Construction — — Total residential mortgage loans 6,475 — Consumer Loans Home equity 1,490 — Auto 39 — Marine 242 — Recreational vehicle 114 — Other 2 — Total consumer loans 1,887 — Total nonaccrual loans and loans past due over 90 days and still accruing $ 19,011 $ — The following table presents the recorded investment in nonaccrual and loans past due over 90 days and still on accrual by class of loans as of December 31, 2014: Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing As of December 31, 2014 Nonaccrual Loans past due over 90 days and still accruing (Dollars in thousands) Commercial loans Multifamily $ 93 $ — Nonresidential 5,781 — Land 531 — Construction 1,051 — Secured 4,016 — Unsecured — — Total commercial loans 11,472 — Residential mortgage loans One-to four-family 6,816 — Construction — — Total residential mortgage loans 6,816 — Consumer Loans Home equity 1,792 — Auto 66 — Marine 119 — Recreational vehicle 184 — Other 2 — Total consumer loans 2,163 — Total nonaccrual loans and loans past due over 90 days and still accruing $ 20,451 $ — The following table presents an age analysis of past-due loans, segregated by class of loans as of June 30, 2015: Past Due Loans (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Loans Total Loans Commercial loans Multifamily $ — $ — $ 85 $ 85 $ 69,400 $ 69,485 Nonresidential 13 — 3,783 3,796 144,229 148,025 Land — — 496 496 9,735 10,231 Construction — — 415 415 15,850 16,265 Secured — — 4,016 4,016 64,797 68,813 Unsecured — — — — 456 456 Total commercial loans 13 — 8,795 8,808 304,467 313,275 Residential mortgage loans One-to four-family 1,414 636 4,207 6,257 703,085 709,342 Construction — — — — 34,074 34,074 Total residential mortgage loans 1,414 636 4,207 6,257 737,159 743,416 Consumer Loans: Home equity 472 136 1,122 1,730 156,179 157,909 Automobile 9 — 11 20 8,149 8,169 Marine 287 — 95 382 2,672 3,054 Recreational vehicle 33 557 16 606 12,005 12,611 Other — 3 — 3 1,950 1,953 Total consumer loans 801 696 1,244 2,741 180,955 183,696 Total loans $ 2,228 $ 1,332 $ 14,246 $ 17,806 $ 1,222,581 $ 1,240,387 The following table presents an age analysis of past-due loans, segregated by class of loans as of December 31, 2014: Past Due Loans (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Loans Total Loans Commercial loans Multifamily $ — $ — $ 93 $ 93 $ 60,453 $ 60,546 Nonresidential — — 3,891 3,891 117,704 121,595 Land — — 531 531 8,953 9,484 Construction — — 1,051 1,051 15,013 16,064 Secured — — 4,016 4,016 41,072 45,088 Unsecured — — — — 134 134 Total commercial loans — — 9,582 9,582 243,329 252,911 Residential mortgage loans One-to four-family 2,279 605 4,856 7,740 686,365 694,105 Construction — — — — 37,113 37,113 Total residential mortgage loans 2,279 605 4,856 7,740 723,478 731,218 Consumer Loans: Home equity 588 183 1,531 2,302 152,474 154,776 Automobile 21 — 30 51 5,851 5,902 Marine — 686 — 686 3,231 3,917 Recreational vehicle 452 109 18 579 13,475 14,054 Other 3 4 1 8 2,097 2,105 Total consumer loans 1,064 982 1,580 3,626 177,128 180,754 Total loans $ 3,343 $ 1,587 $ 16,018 $ 20,948 $ 1,143,935 $ 1,164,883 As of June 30, 2015 and December 31, 2014, the Company has a recorded investment in troubled debt restructurings of $29.5 million and $28.1 million, respectively. The Company has allocated $2.4 million and $2.6 million of specific allowance for those loans at June 30, 2015 and December 31, 2014, respectively. The Company has committed to lend additional amounts totaling up to$41,000 and $50,000 at June 30, 2015 and December 31, 2014, respectively. The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended June 30, 2015: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (In thousands) Commercial loans Multifamily — $ — $ — Nonresidential — — — Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans — — — Residential mortgage loans One-to four-family 5 469 476 Construction — — — Total residential mortgage loans 5 469 476 Consumer loans Home equity 4 128 129 Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans 4 128 129 Total restructured loans 9 $ 597 $ 605 The troubled debt restructurings described above increased the allowance for loan losses by $24,000 and resulted in no charge-offs during the three months ended June 30, 2015. The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2015: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (In thousands) Commercial loans Multifamily — $ — $ — Nonresidential — — — Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans — — — Residential mortgage loans One-to four-family 10 910 930 Construction — — — Total residential mortgage loans 10 910 930 Consumer loans Home equity 6 482 483 Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans 6 482 483 Total restructured loans 16 $ 1,392 $ 1,413 The troubled debt restructurings described above increased the allowance for loan losses by $82,000 and resulted in no charge-offs during the six months ended June 30, 2015. The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended June 30, 2014: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — $ — Nonresidential — — — Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans — — — Residential mortgage loans One-to four-family 11 922 969 Construction — — — Total residential mortgage loans 11 922 969 Consumer loans Home equity 9 465 450 Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans 9 465 450 Total restructured loans 20 $ 1,387 $ 1,419 The troubled debt restructurings described above increased the allowance for loan losses by $59,000, and resulted in chargeoffs of $3,000 during the three months ended June 30, 2014. The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2014: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — $ — Nonresidential 1 120 120 Land — — — Construction — — — Secured — — — Unsecured — — — Total commercial loans 1 120 120 Residential mortgage loans One-to four-family 20 1,491 1,545 Construction — — — Total residential mortgage loans 20 1,491 1,545 Consumer loans Home equity 19 1,017 1,009 Auto — — — Marine — — — Recreational vehicle — — — Other — — — Total consumer loans 19 1,017 1,009 Total restructured loans 40 $ 2,628 $ 2,674 The troubled debt restructurings described above increased the allowance for loan losses by $116,000, and resulted in chargeoffs of $3,000 during the six months ended June 30, 2014. The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within a twelve month cycle following the modification during the six months ended June 30, 2015: Number of loans Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — Nonresidential — — Land — — Construction — — Secured — — Unsecured — — Total commercial loans — — Residential mortgage loans One-to four-family 1 76 Construction — — Total residential mortgage loans 1 76 Consumer loans Home equity 2 56 Auto — — Marine — — Recreational vehicle — — Other — — Total consumer loans 2 56 Total restructured loans 3 $ 132 The troubled debt restructurings that subsequently defaulted described above resulted in no charge-offs during the three and six months ended June 30, 2015, and had no effect on the provision for loan losses. The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within a twelve month cycle following the modification during the six months ended June 30, 2014: Number of loans Recorded Investment (Dollars in thousands) Commercial loans Multifamily — $ — Nonresidential — — Land — — Construction — — Secured — — Unsecured — — Total commercial loans — — Residential mortgage loans One-to four-family 2 74 Construction — — Total residential mortgage loans 2 74 Consumer loans Home equity 4 172 Auto — — Marine — — Recreational vehicle — — Other — — Total consumer loans 4 172 Total restructured loans 6 $ 246 The troubled debt restructurings that subsequently defaulted described above resulted in no charge-offs during the three months ended June 30, 2014, and had no effect on the provision for loan losses. A troubled debt restructuring is considered to be in payment default once it is 30 days contractually past due under the modified terms. 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 in accordance with the Company’s internal underwriting policy. Credit Quality Indicators: The Company categorizes 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, public information and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans past due 90 cumulative days, and all non-homogeneous loans including commercial loans and commercial real estate loans. Smaller balance homogeneous loans are primarily monitored by payment status. Asset quality ratings are divided into two groups: Pass (unclassified) and Classified. Within the unclassified group, certain loans that display potential weakness are risk rated as special mention. In addition, there are three classified risk ratings: substandard, doubtful and loss. These specific credit risk categories are defined as follows: Special Mention. Loans classified as special mention have 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 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 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. Loss. Loans classified as loss are considered uncollectible and of such little value, that continuance as assets is not warranted. Although there may be a chance of recovery on these assets, it is not practical or desirable to defer writing off the asset. The Company monitors loans on a monthly basis to determine if they should be included in one of the categories listed above. All impaired non-homogeneous credits classified as Substandard, Doubtful or Loss are analyzed on an individual basis for a specific reserve requirement. This analysis is performed on each individual credit at least annually or more frequently if warranted. As of June 30, 2015 and December 31, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Loans June 30, 2015 (Dollars in thousands) Unclassified Classified Unclassified Special Mention Substandard Doubtful Loss Total Classified Total Loans Commercial Loans Multifamily $ 64,906 $ 2,055 $ 2,524 $ — $ — $ 2,524 $ 69,485 Nonresidential 123,491 11,592 12,942 — — 12,942 148,025 Land 9,735 — 496 — — 496 10,231 Construction 15,850 — 415 — — 415 16,265 Secured 63,319 — 5,494 — — 5,494 68,813 Unsecured 349 — 107 — — 107 456 Total commercial loans 277,650 13,647 21,978 — — 21,978 313,275 Residential mortgage loans One-to four-family 701,570 125 7,647 — — 7,647 709,342 Construction 34,074 — — — — — 34,074 Total residential mortgage loans 735,644 125 7,647 — — 7,647 743,416 Consumer Loans Home equity 156,152 — 1,757 — — 1,757 157,909 Auto 8,121 3 45 — — 45 8,169 Marine 2,770 — 284 — — 284 3,054 Recreational vehicle 12,481 — 130 — — 130 12,611 Other 1,948 — 5 — — 5 1,953 Total consumer loans 181,472 3 2,221 — — 2,221 183,696 Total loans $ 1,194,766 $ 13,775 $ 31,846 $ — $ — $ 31,846 $ 1,240,387 Loans December 31, 2014 (Dollars in thousands) Unclassified Classified Unclassified Special Mention Substandard Doubtful Loss Total Classified Total Loans Commercial Loans Multifamily $ 53,485 $ 4,134 $ 2,927 $ — $ — $ 2,927 $ 60,546 Nonresidential 92,074 12,290 17,231 — — 17,231 121,595 Land 8,952 — 532 — — 532 9,484 Construction 15,013 — 1,051 — — 1,051 16,064 Secured 39,480 900 4,708 — — 4,708 45,088 Unsecured 22 — 112 — — 112 134 Total commercial loans 209,026 17,324 26,561 — — 26,561 252,911 Residential mortgage loans One-to four-family 684,779 939 8,387 — — 8,387 694,105 Construction 37,113 — — — — — 37,113 Total residential mortgage loans 721,892 939 8,387 — — 8,387 731,218 Consumer Loans Home equity 152,599 — 2,177 — — 2,177 154,776 Auto 5,829 10 63 — — 63 5,902 Marine 3,766 — 151 — — 151 3,917 Recreational vehicle 13,846 — 208 — — 208 14,054 Other 2,099 — 6 — — 6 2,105 Total consumer loans 178,139 10 2,605 — — 2,605 180,754 Total loans $ 1,109,057 $ 18,273 $ 37,553 $ — $ — $ 37,553 $ 1,164,883 |