Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - SUFFOLK BANCORPFinancial_Report.xls
EX-32.2 - EXHIBIT 32.2 - SUFFOLK BANCORPex32_2.htm
EX-31.1 - EXHIBIT 31.1 - SUFFOLK BANCORPex31_1.htm
EX-32.1 - EXHIBIT 32.1 - SUFFOLK BANCORPex32_1.htm
EX-31.2 - EXHIBIT 31.2 - SUFFOLK BANCORPex31_2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2015

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission File No. 000-13580
SUFFOLK BANCORP
(Exact Name of Registrant as Specified in Its Charter)

NEW YORK
 
11-2708279
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

4 WEST SECOND STREET, P.O. BOX 9000, RIVERHEAD, NY 11901
(Address of Principal Executive Offices) (Zip Code)

(631) 208-2400
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No

As of April 15, 2015, there were 11,728,384 shares of registrant’s Common Stock outstanding.
 


SUFFOLK BANCORP
Form 10-Q
For the Quarterly Period Ended March 31, 2015

Table of Contents

   
Page
 
PART I
 
     
Item 1.
2
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
27
     
Item 3.
40
     
Item 4.
41
     
 
PART II
 
     
Item 1.
41
     
Item 1A.
41
     
Item 2.
42
     
Item 3.
42
     
Item 4.
42
     
Item 5.
42
     
Item 6.
42
     
 
43
 
PART I
ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
March 31, 2015 and December 31, 2014
(dollars in thousands, except per share data)

   
March 31, 2015
   
December 31, 2014
 
ASSETS
       
Cash and cash equivalents
       
Cash and non-interest-bearing deposits due from banks
 
$
46,886
   
$
41,140
 
Interest-bearing deposits due from banks
   
12,138
     
13,376
 
Federal funds sold
   
-
     
1,000
 
Total cash and cash equivalents
   
59,024
     
55,516
 
Interest-bearing time deposits in other banks
   
10,000
     
10,000
 
Federal Reserve Bank,  Federal Home Loan Bank and other stock
   
6,800
     
8,600
 
Investment securities:
               
Available for sale, at fair value
   
291,557
     
298,670
 
Held to maturity (fair value of $65,414 and $64,796, respectively)
   
62,191
     
62,270
 
Total investment securities
   
353,748
     
360,940
 
Loans
   
1,382,160
     
1,355,427
 
Allowance for loan losses
   
19,325
     
19,200
 
Net loans
   
1,362,835
     
1,336,227
 
Loans held for sale
   
2,836
     
26,495
 
Premises and equipment, net
   
23,219
     
23,641
 
Bank owned life insurance
   
45,418
     
45,109
 
Deferred taxes
   
14,886
     
15,714
 
Accrued interest and loan fees receivable
   
6,482
     
5,676
 
Goodwill and other intangibles
   
3,043
     
2,991
 
Other assets
   
3,666
     
4,374
 
TOTAL ASSETS
 
$
1,891,957
   
$
1,895,283
 
                 
LIABILITIES & STOCKHOLDERS' EQUITY
               
Demand deposits
 
$
682,593
   
$
683,634
 
Savings, N.O.W. and money market deposits
   
685,891
     
653,667
 
Subtotal core deposits
   
1,368,484
     
1,337,301
 
Time deposits
   
223,188
     
218,759
 
Total deposits
   
1,591,672
     
1,556,060
 
Borrowings
   
90,000
     
130,000
 
Unfunded pension liability
   
6,192
     
6,303
 
Capital leases
   
4,483
     
4,511
 
Other liabilities
   
12,050
     
15,676
 
TOTAL LIABILITIES
   
1,704,397
     
1,712,550
 
COMMITMENTS AND CONTINGENT LIABILITIES
               
STOCKHOLDERS' EQUITY
               
Common stock (par value $2.50; 15,000,000 shares authorized; 13,891,390 shares and 13,836,508 shares issued at March 31, 2015 and December 31, 2014, respectively; 11,725,652 shares and 11,670,770 shares outstanding at March 31, 2015 and December 31, 2014, respectively)
   
34,728
     
34,591
 
Surplus
   
44,495
     
44,230
 
Retained earnings
   
119,478
     
116,169
 
Treasury stock at par (2,165,738 shares)
   
(5,414
)
   
(5,414
)
Accumulated other comprehensive loss, net of tax
   
(5,727
)
   
(6,843
)
TOTAL STOCKHOLDERS' EQUITY
   
187,560
     
182,733
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
1,891,957
   
$
1,895,283
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31, 2015 and 2014
(dollars in thousands, except per share data)

   
Three Months Ended March 31,
 
   
2015
   
2014
 
INTEREST INCOME
       
Loans and loan fees
 
$
14,569
   
$
12,877
 
U.S. Government agency obligations
   
541
     
628
 
Obligations of states and political subdivisions
   
1,335
     
1,505
 
Collateralized mortgage obligations
   
182
     
250
 
Mortgage-backed securities
   
445
     
501
 
Corporate bonds
   
38
     
90
 
Federal funds sold and interest-bearing deposits due from banks
   
23
     
46
 
Dividends
   
60
     
38
 
Total interest income
   
17,193
     
15,935
 
INTEREST EXPENSE
               
Savings, N.O.W. and money market deposits
   
274
     
292
 
Time deposits
   
294
     
345
 
Borrowings
   
108
     
-
 
Total interest expense
   
676
     
637
 
Net interest income
   
16,517
     
15,298
 
Provision for loan losses
   
250
     
250
 
Net interest income after provision for loan losses
   
16,267
     
15,048
 
NON-INTEREST INCOME
               
Service charges on deposit accounts
   
747
     
1,003
 
Other service charges, commissions and fees
   
593
     
679
 
Fiduciary fees
   
-
     
279
 
Net gain on sale of securities available for sale
   
26
     
-
 
Net gain on sale of portfolio loans
   
198
     
-
 
Net gain on sale of mortgage loans originated for sale
   
144
     
93
 
Net gain on sale of premises and equipment
   
-
     
642
 
Income from bank owned life insurance
   
309
     
354
 
Other operating income
   
74
     
42
 
Total non-interest income
   
2,091
     
3,092
 
OPERATING EXPENSES
               
Employee compensation and benefits
   
8,606
     
8,861
 
Occupancy expense
   
1,462
     
1,435
 
Equipment expense
   
385
     
449
 
Consulting and professional services
   
338
     
551
 
FDIC assessment
   
290
     
267
 
Data processing
   
570
     
573
 
Branch consolidation costs (credits)
   
-
     
(170
)
Other operating expenses
   
1,457
     
1,343
 
Total operating expenses
   
13,108
     
13,309
 
Income before income tax expense
   
5,250
     
4,831
 
Income tax expense
   
1,241
     
1,111
 
NET INCOME
 
$
4,009
   
$
3,720
 
EARNINGS PER COMMON SHARE - BASIC
 
$
0.34
   
$
0.32
 
EARNINGS PER COMMON SHARE - DILUTED
 
$
0.34
   
$
0.32
 
WEIGHTED AVERAGE COMMON SHARES - BASIC
   
11,694,427
     
11,573,014
 
WEIGHTED AVERAGE COMMON SHARES - DILUTED
   
11,763,099
     
11,631,462
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.06
   
$
-
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended March 31, 2015 and 2014
(in thousands)

   
Three Months Ended March 31,
 
   
2015
   
2014
 
         
Net income
 
$
4,009
   
$
3,720
 
Other comprehensive income, net of tax and reclassification adjustments:
               
Change in unrealized gain on securities available for sale arising during the period, net of tax of $703 and $2,681, respectively
   
1,075
     
4,700
 
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $27 and ($920), respectively
   
41
     
(1,612
)
Total other comprehensive income, net of tax
   
1,116
     
3,088
 
Total comprehensive income
 
$
5,125
   
$
6,808
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
For the Three Months Ended March 31, 2015 and 2014
(in thousands, except per share data)

   
Three Months Ended March 31,
 
   
2015
   
2014
 
Common stock
       
Balance, January 1
 
$
34,591
   
$
34,348
 
Dividend reinvestment (7,295 shares issued in 2015)
   
18
     
-
 
Stock options exercised (1,000 shares issued in 2015)
   
3
     
-
 
Stock-based compensation (46,587 shares issued, net of forfeitures, in 2015)
   
116
     
-
 
Ending balance
   
34,728
     
34,348
 
Surplus
               
Balance, January 1
   
44,230
     
43,280
 
Dividend reinvestment
   
143
     
-
 
Stock options exercised
   
16
     
-
 
Stock-based compensation
   
106
     
165
 
Ending balance
   
44,495
     
43,445
 
Retained earnings
               
Balance, January 1
   
116,169
     
102,273
 
Net income
   
4,009
     
3,720
 
Cash dividend on common stock ($0.06 per share in 2015)
   
(700
)
   
-
 
Ending balance
   
119,478
     
105,993
 
Treasury stock
               
Balance, January 1
   
(5,414
)
   
(5,414
)
Ending balance
   
(5,414
)
   
(5,414
)
Accumulated other comprehensive loss, net of tax
               
Balance, January 1
   
(6,843
)
   
(7,289
)
Other comprehensive income
   
1,116
     
3,088
 
Ending balance
   
(5,727
)
   
(4,201
)
Total stockholders' equity
 
$
187,560
   
$
174,171
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2015 and 2014
(in thousands)

   
Three Months Ended March 31,
 
   
2015
   
2014
 
NET INCOME
 
$
4,009
   
$
3,720
 
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
               
Provision for loan losses
   
250
     
250
 
Depreciation and amortization
   
565
     
604
 
Stock-based compensation
   
222
     
165
 
Net amortization of premiums
   
297
     
293
 
Originations of mortgage loans held for sale
   
(9,314
)
   
(4,061
)
Proceeds from sale of mortgage loans originated for sale
   
9,281
     
4,139
 
Gain on sale of mortgage loans originated for sale
   
(144
)
   
(93
)
Gain on sale of portfolio loans
   
(198
)
   
-
 
Increase in other intangibles
   
(52
)
   
(16
)
Deferred tax expense (benefit)
   
99
     
(78
)
Increase in accrued interest and loan fees receivable
   
(806
)
   
(881
)
Decrease in other assets
   
708
     
372
 
Adjustment to unfunded pension liability
   
(111
)
   
(91
)
Decrease in other liabilities
   
(3,626
)
   
(4,230
)
Income from bank owned life insurance
   
(309
)
   
(354
)
Gain on sale of premises and equipment
   
-
     
(642
)
Net gain on sale of securities available for sale
   
(26
)
   
-
 
Net cash provided by (used in) operating activities
   
845
     
(903
)
CASH FLOWS FROM INVESTING ACTIVITIES
               
Principal payments on investment securities
   
1,413
     
3,854
 
Proceeds from sale of investment securities - available for sale
   
531
     
-
 
Maturities of investment securities - available for sale
   
6,705
     
6,040
 
Maturities of investment securities - held to maturity
   
117
     
315
 
Purchases of investment securities -  held to maturity
   
-
     
(2,834
)
Decrease in Federal Reserve Bank, Federal Home Loan Bank and other stock
   
1,800
     
-
 
Proceeds from sale of portfolio loans
   
23,986
     
-
 
Loan originations - net
   
(26,810
)
   
(60,746
)
Proceeds from sale of premises and equipment
   
-
     
900
 
Increase in bank owned life insurance
   
-
     
(5,000
)
Purchases of premises and equipment - net
   
(143
)
   
(124
)
Net cash provided by (used in) investing activities
   
7,599
     
(57,595
)
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase in deposit accounts
   
35,612
     
13,373
 
Net decrease in borrowings
   
(40,000
)
   
-
 
Proceeds from stock options exercised
   
19
     
-
 
Cash dividends paid on common stock
   
(700
)
   
-
 
Proceeds from shares issued under the dividend reinvestment plan
   
161
     
-
 
Decrease  in capital lease payable
   
(28
)
   
(24
)
Net cash (used in) provided by financing activities
   
(4,936
)
   
13,349
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
3,508
     
(45,149
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
55,516
     
132,352
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
59,024
   
$
87,203
 
SUPPLEMENTAL DATA:
               
Interest paid
 
$
681
   
$
637
 
Income taxes paid
 
$
340
   
$
329
 
Investment securities transferred from available for sale to held to maturity
 
$
-
   
$
31,286
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Suffolk Bancorp (the “Company”) was incorporated in 1985 as a bank holding company. The Company currently owns all of the outstanding capital stock of Suffolk County National Bank (the “Bank”). The Bank was organized under the national banking laws of the United States in 1890. The Bank formed Suffolk Greenway, Inc. (the “REIT”), a real estate investment trust, and owns 100% of an insurance agency and two corporations used to acquire foreclosed real estate. The insurance agency and the two corporations used to acquire foreclosed real estate are immaterial to the Company’s operations. The unaudited interim condensed consolidated financial statements include the accounts of the Company and the Bank and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Unless the context otherwise requires, references herein to the Company include the Company and the Bank and subsidiaries on a consolidated basis.

In the opinion of the Company’s management, the preceding unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal accruals, necessary for a fair presentation of its condensed consolidated statement of condition as of March 31, 2015, its condensed consolidated statements of income for the three months ended March 31, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three months ended March 31, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2015 and 2014 and its condensed consolidated statements of cash flows for the three months ended March 31, 2015 and 2014.

The preceding unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results of operations to be expected for the remainder of the year. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company’s 2014 Annual Report on Form 10-K.

Earnings Per Share - Basic earnings per share is computed based on the weighted average number of common shares and unvested restricted shares outstanding for each period. The Company’s unvested restricted shares are considered participating securities as they contain rights to non-forfeitable dividends and thus they are included in the basic earnings per share computation. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under stock options. In the event a net loss is reported, restricted shares and stock options are excluded from earnings per share computations.

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three months ended March 31, 2015 and 2014 follows.

   
Three Months Ended March 31,
 
   
2015
   
2014
 
         
Weighted average common shares outstanding
   
11,602,924
     
11,573,014
 
Weighted average unvested restricted shares
   
91,503
     
-
 
Weighted average shares for basic earnings per share
   
11,694,427
     
11,573,014
 
Additional diluted shares:
               
Stock options
   
68,672
     
58,448
 
Weighted average shares for diluted earnings per share
   
11,763,099
     
11,631,462
 


Loans and Loan Interest Income Recognition – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs. Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.
 
Interest income is accrued on the unpaid loan principal balance. Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. Loans of all classes will generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management’s judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans may start accruing interest again when they become current as to principal and interest for at least six months, and when, after a well-documented analysis by management, it has been determined that the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a quarterly analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every impaired loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the estimated collectability of the loan class not captured by historical loss data. These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Loans Held For Sale – Loans held for sale are carried at the lower of aggregate cost or fair value, based on observable inputs in the secondary market. Changes in fair value of loans held for sale are recognized in earnings.

Bank Owned Life Insurance – Bank owned life insurance is recorded at the lower of the cash surrender value or the amount that can be realized under the insurance policy and is included as an asset in the consolidated statements of condition. Changes in the cash surrender value and insurance benefit payments are recorded in non-interest income in the consolidated statements of income.

Derivatives - Derivatives are contracts between counterparties that specify conditions under which settlements are to be made. The only derivatives held by the Company are swap contracts with the purchaser of its Visa Class B shares. The Company records its derivatives on the consolidated statements of condition at fair value. The Company’s derivatives do not qualify for hedge accounting. As a result, changes in fair value are recognized in earnings in the period in which they occur. (See also Note 3. Investment Securities contained herein.)
 
Recent Accounting Guidance – In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,” as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). This ASU eliminates from U.S. GAAP the concept of extraordinary items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Management intends to adopt ASU 2015-01 on January 1, 2016 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2017 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On April 2, 2015, the FASB decided to propose a one-year delay of the effective date for the new revenue recognition standard. If the proposal is finalized, the revenue recognition standard would take effect in 2018 for calendar year-end public entities. The proposal is expected to be released soon with a 30 day comment period.

In January 2014, the FASB issued ASU 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Topic 310), “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company’s adoption of ASU 2014-04 on January 1, 2015 did not have a material effect on the Company’s consolidated financial statements.

Reclassifications — Certain reclassifications have been made to prior period information in order to conform to the current period’s presentation. Such reclassifications had no impact on the Company’s consolidated results of operations or financial condition.

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)
The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2015 and 2014 follow (in thousands).

   
Three Months Ended March 31, 2015
 
   
Unrealized Gains and
Losses on Available
for Sale Securities
   
Unrealized Losses on
Securities Transferred
from Available for
Sale to Held to
Maturity
   
Pension and Post-
Retirement Plan
Items
   
Total
 
Beginning balance
 
$
2,637
   
$
(1,805
)
 
$
(7,675
)
 
$
(6,843
)
Other comprehensive income before reclassifications
   
1,091
     
-
     
-
     
1,091
 
Amounts reclassified from AOCI
   
(16
)
   
41
     
-
     
25
 
Net other comprehensive income
   
1,075
     
41
     
-
     
1,116
 
Ending balance
 
$
3,712
   
$
(1,764
)
 
$
(7,675
)
 
$
(5,727
)

   
Three Months Ended March 31, 2014
 
   
Unrealized Gains and
Losses on Available
for Sale Securities
   
Unrealized Losses on
Securities Transferred
from Available for
Sale to Held to
Maturity
   
Pension and Post-
Retirement Plan
Items
   
Total
 
Beginning balance
 
$
(4,095
)
 
$
-
   
$
(3,194
)
 
$
(7,289
)
Other comprehensive income (loss) before reclassifications
   
4,700
     
(1,633
)
   
-
     
3,067
 
Amounts reclassified from AOCI
   
-
     
21
     
-
     
21
 
Net other comprehensive income (loss)
   
4,700
     
(1,612
)
   
-
     
3,088
 
Ending balance
 
$
605
   
$
(1,612
)
 
$
(3,194
)
 
$
(4,201
)

The table below presents reclassifications out of AOCI for the three months ended March 31, 2015 and 2014 (in thousands).

   
Amount Reclassified from AOCI
   
   
Three Months Ended March 31,
 
Affected Line Item in the Statement
Details about AOCI Components
 
2015
   
2014
 
Where Net Income is Presented
Unrealized gains and losses on available for sale securities
 
$
26
   
$
-
 
Net gain on sale of securities available for sale
                      
Unrealized losses on securities transferred from available for sale to held to maturity
   
(68
)
   
(33
)
Interest income - U.S. Government agency obligations
                      
     
17
     
12
 
Income tax expense
                      
Total reclassifications, net of tax
 
$
(25
)
 
$
(21
)
 
 
3. INVESTMENT SECURITIES
At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity. Securities available for sale are stated at estimated fair value. Unrealized gains and losses are excluded from income and reported net of tax in AOCI as a separate component of stockholders’ equity until realized. Changes in unrealized gains and losses are reported, net of tax, in the consolidated statements of comprehensive income. Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of income and determined using the adjusted cost of the specific security sold.

During the full year of 2014, investment securities with a fair value of $48 million and unrealized loss of $3.2 million were transferred from available for sale to held to maturity. In accordance with U.S. GAAP, the securities were transferred at fair value, which became the amortized cost. The discount will be accreted to interest income over the remaining life of the security. The unrealized holding losses at the date of transfer remained in AOCI and will be amortized simultaneously against interest income. Those entries will offset or mitigate each other.
 
The amortized cost, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at March 31, 2015 and December 31, 2014 were as follows (in thousands):
 
   
March 31, 2015
    
December 31, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
Available for sale:
                               
U.S. Government agency securities
 
$
38,974
   
$
8
   
$
(273
)
 
$
38,709
   
$
42,474
   
$
-
   
$
(897
)
 
$
41,577
 
Obligations of states and political subdivisions
   
127,440
     
6,484
     
-
     
133,924
     
131,300
     
6,469
     
-
     
137,769
 
Collateralized mortgage obligations
   
21,470
     
273
     
(352
)
   
21,391
     
22,105
     
423
     
(531
)
   
21,997
 
Mortgage-backed securities
   
91,211
     
388
     
(515
)
   
91,084
     
92,095
     
88
     
(1,264
)
   
90,919
 
Corporate bonds
   
6,324
     
142
     
(17
)
   
6,449
     
6,336
     
90
     
(18
)
   
6,408
 
Total available for sale securities
   
285,419
     
7,295
     
(1,157
)
   
291,557
     
294,310
     
7,070
     
(2,710
)
   
298,670
 
Held to maturity:
                                                               
U.S. Government agency securities
   
48,433
     
2,431
     
-
     
50,864
     
48,365
     
1,717
     
-
     
50,082
 
Obligations of states and political subdivisions
   
13,758
     
792
     
-
     
14,550
     
13,905
     
809
     
-
     
14,714
 
Total held to maturity securities
   
62,191
     
3,223
     
-
     
65,414
     
62,270
     
2,526
     
-
     
64,796
 
Total investment securities
 
$
347,610
   
$
10,518
   
$
(1,157
)
 
$
356,971
   
$
356,580
   
$
9,596
   
$
(2,710
)
 
$
363,466
 

At March 31, 2015 and December 31, 2014, investment securities carried at $246 million and $245 million, respectively, were pledged for public funds on deposit and as collateral for the Company’s derivative swap contracts.

The amortized cost, contractual maturities and fair value of the Company’s investment securities at March 31, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

   
March 31, 2015
 
   
Amortized
Cost
   
Fair
Value
 
Securities available for sale:
       
Due in one year or less
 
$
28,100
   
$
28,595
 
Due from one to five years
   
143,494
     
147,769
 
Due from five to ten years
   
113,825
     
115,193
 
Total securities available for sale
   
285,419
     
291,557
 
Securities held to maturity:
               
Due in one year or less
   
1,630
     
1,644
 
Due from one to five years
   
5,392
     
5,792
 
Due from five to ten years
   
32,073
     
33,256
 
Due after ten years
   
23,096
     
24,722
 
Total securities held to maturity
   
62,191
     
65,414
 
Total investment securities
 
$
347,610
   
$
356,971
 

The proceeds from sales of securities available for sale and the associated realized gains and losses are shown below for the periods indicated (in thousands). Realized gains are also inclusive of gains on called securities.

   
Three Months Ended March 31,
 
   
2015
   
2014
 
         
Proceeds
 
$
531
   
$
-
 
                 
Gross realized gains
 
$
26
   
$
-
 
Gross realized losses
   
-
     
-
 
Net realized gains
 
$
26
   
$
-
 
 
Information pertaining to securities with unrealized losses at March 31, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

   
Less than 12 months
   
12 months or longer
   
Total
 
March 31, 2015
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
U.S. Government agency securities
 
$
13,919
   
$
(60
)
 
$
19,787
   
$
(213
)
 
$
33,706
   
$
(273
)
Collateralized mortgage obligations
   
-
     
-
     
8,476
     
(352
)
   
8,476
     
(352
)
Mortgage-backed securities
   
20,712
     
(115
)
   
27,159
     
(400
)
   
47,871
     
(515
)
Corporate bonds
   
-
     
-
     
2,983
     
(17
)
   
2,983
     
(17
)
Total
 
$
34,631
   
$
(175
)
 
$
58,405
   
$
(982
)
 
$
93,036
   
$
(1,157
)

   
Less than 12 months
   
12 months or longer
   
Total
 
December 31, 2014
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
U.S. Government agency securities
 
$
-
   
$
-
   
$
41,577
   
$
(897
)
 
$
41,577
   
$
(897
)
Collateralized mortgage obligations
   
-
     
-
     
8,417
     
(531
)
   
8,417
     
(531
)
Mortgage-backed securities
   
-
     
-
     
81,510
     
(1,264
)
   
81,510
     
(1,264
)
Corporate bonds
   
-
     
-
     
2,982
     
(18
)
   
2,982
     
(18
)
Total
 
$
-
   
$
-
   
$
134,486
   
$
(2,710
)
 
$
134,486
   
$
(2,710
)

The corporate bonds with unrealized losses for twelve months or longer at March 31, 2015 in the table above carry investment grade ratings by all major credit rating agencies including both Moody’s and Standard  & Poor’s. The unrealized losses on these bonds were a result of the current interest rate environment and the corresponding shape of the yield curve. The losses were not related to a deterioration of the quality of the issuer or any company-specific adverse events. All other securities with unrealized losses for twelve months or longer at March 31, 2015 are issued or guaranteed by U.S. Government agencies or sponsored enterprises and the related unrealized losses resulted solely from the current interest rate environment and the corresponding shape of the yield curve. The Company does not intend to sell and it is not more likely than not that the Company will be required to sell these securities prior to their recovery to a level equal to or greater than amortized cost. Management has determined that no other-than-temporary impairment (“OTTI”) was present at March 31, 2015.

The Bank was a member of the Visa USA payment network and was issued Class B shares upon Visa’s initial public offering in March 2008. The Visa Class B shares are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock. This conversion cannot happen until the settlement of certain litigation, which is indemnified by Visa members. Since its initial public offering, Visa has funded a litigation reserve based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares. At its discretion, Visa may continue to increase the conversion rate in connection with any settlements in excess of amounts then in escrow for that purpose and reduce the conversion rate to the extent that it adds any funds to the escrow in the future. Based on the existing transfer restriction and the uncertainty of the litigation, the Company has recorded its Visa Class B shares on its balance sheet at zero value.

During 2013, the Bank sold 100,000 Visa Class B shares to another Visa USA member financial institution at a gross pre-tax gain of approximately $7.8 million which was recorded in non-interest income in the Company’s statement of income. In conjunction with the sale, the Company entered into derivative swap contracts with the purchaser of these Visa Class B shares which provide for settlements between the purchaser and the Company based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares.

In the fourth quarter of 2014, the Bank received notification of a change in the conversion ratio of Visa Class B shares into Visa Class A shares and was required to make a payment of $180 thousand to the purchaser of the Visa Class B shares it sold in 2013. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at March 31, 2015 and December 31, 2014.

The present value of estimated future fees to be paid to the derivative counterparty, or carrying costs, calculated by reference to the market price of the Visa Class A shares at a fixed rate of interest are expensed as incurred. For the three months ended March 31, 2015 and 2014, $70 thousand and $59 thousand, respectively, in such carrying costs was expensed. The Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at March 31, 2015, as collateral for the derivative swap contracts.
 
Subjectivity has been used in estimating the fair value of both the derivative liability and the associated fees, but management believes that these fair value estimates are adequate based on available information. However, future developments in the litigation could require potentially significant changes to these estimates.

At March 31, 2015, the Company still owned 38,638 Visa Class B shares subsequent to the sales described here. Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.

4. LOANS
At March 31, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

     
March 31, 2015
   
December 31, 2014
 
Commercial and industrial
 
$
178,812
   
$
177,813
 
Commercial real estate
   
579,873
     
560,524
 
Multifamily
   
322,229
     
309,666
 
Mixed use commercial
   
35,333
     
34,806
 
Real estate construction
   
24,608
     
26,206
 
Residential mortgages
   
184,977
     
187,828
 
Home equity
   
49,440
     
50,982
 
Consumer
   
6,888
     
7,602
 
Gross loans
   
1,382,160
     
1,355,427
 
Allowance for loan losses
   
(19,325
)
   
(19,200
)
Net loans at end of period
 
$
1,362,835
   
$
1,336,227
 

The following summarizes the activity in the allowance for loan losses disaggregated by class for the periods indicated (in thousands).

   
Three Months Ended March 31, 2015
   
Three Months Ended March 31, 2014
 
   
Balance at
beginning of
period
   
Charge-offs
   
Recoveries
   
Provision
(credit) for
loan losses
   
Balance at
end of
period
   
Balance at
beginning of
period
   
Charge-offs
   
Recoveries
   
(Credit)
provision
for loan
losses
   
Balance at
end of
period
 
Commercial and industrial
 
$
1,560
   
$
(492
)
 
$
343
   
$
587
   
$
1,998
   
$
2,615
   
$
(115
)
 
$
293
   
$
(312
)
 
$
2,481
 
Commercial real estate
   
6,777
     
-
     
7
     
568
     
7,352
     
6,572
     
-
     
12
     
624
     
7,208
 
Multifamily
   
4,018
     
-
     
-
     
449
     
4,467
     
2,159
     
-
     
-
     
481
     
2,640
 
Mixed use commercial
   
261
     
-
     
-
     
12
     
273
     
54
     
-
     
-
     
33
     
87
 
Real estate construction
   
383
     
-
     
-
     
(23
)
   
360
     
88
     
-
     
-
     
129
     
217
 
Residential mortgages
   
3,027
     
-
     
11
     
(420
)
   
2,618
     
2,463
     
-
     
4
     
160
     
2,627
 
Home equity
   
709
     
-
     
2
     
17
     
728
     
745
     
-
     
27
     
(54
)
   
718
 
Consumer
   
166
     
(1
)
   
5
     
(15
)
   
155
     
241
     
(2
)
   
5
     
(58
)
   
186
 
Unallocated
   
2,299
     
-
     
-
     
(925
)
   
1,374
     
2,326
     
-
     
-
     
(753
)
   
1,573
 
Total
 
$
19,200
   
$
(493
)
 
$
368
   
$
250
   
$
19,325
   
$
17,263
   
$
(117
)
 
$
341
   
$
250
   
$
17,737
 

Factors considered by management in determining loan impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
 
The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors. These qualitative factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability, and depth of lending management and other relevant staff; local, regional and national economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
 
At March 31, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at March 31, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

   
Allowance for Loan Losses
   
Loan Balances
 
March 31, 2015
 
Individually evaluated for impairment
   
Collectively evaluated for impairment
   
Ending balance
   
Individually evaluated for impairment
   
Collectively evaluated for impairment
   
Ending balance
 
Commercial and industrial
 
$
10
   
$
1,988
   
$
1,998
   
$
3,764
   
$
175,048
   
$
178,812
 
Commercial real estate
   
-
     
7,352
     
7,352
     
10,302
     
569,571
     
579,873
 
Multifamily
   
-
     
4,467
     
4,467
     
-
     
322,229
     
322,229
 
Mixed use commercial
   
-
     
273
     
273
     
-
     
35,333
     
35,333
 
Real estate construction
   
-
     
360
     
360
     
-
     
24,608
     
24,608
 
Residential mortgages
   
771
     
1,847
     
2,618
     
5,651
     
179,326
     
184,977
 
Home equity
   
159
     
569
     
728
     
1,670
     
47,770
     
49,440
 
Consumer
   
88
     
67
     
155
     
398
     
6,490
     
6,888
 
Unallocated
   
-
     
1,374
     
1,374
     
-
     
-
     
-
 
Total
 
$
1,028
   
$
18,297
   
$
19,325
   
$
21,785
   
$
1,360,375
   
$
1,382,160
 

   
Allowance for Loan Losses
   
Loan Balances
 
December 31, 2014
 
Individually evaluated for impairment
   
Collectively evaluated for impairment
   
Ending balance
   
Individually evaluated for impairment
   
Collectively evaluated for impairment
   
Ending balance
 
Commercial and industrial
 
$
16
   
$
1,544
   
$
1,560
   
$
4,889
   
$
172,924
   
$
177,813
 
Commercial real estate
   
-
     
6,777
     
6,777
     
10,214
     
550,310
     
560,524
 
Multifamily
   
-
     
4,018
     
4,018
     
-
     
309,666
     
309,666
 
Mixed use commercial
   
-
     
261
     
261
     
-
     
34,806
     
34,806
 
Real estate construction
   
-
     
383
     
383
     
-
     
26,206
     
26,206
 
Residential mortgages
   
809
     
2,218
     
3,027
     
5,422
     
182,406
     
187,828
 
Home equity
   
92
     
617
     
709
     
1,567
     
49,415
     
50,982
 
Consumer
   
88
     
78
     
166
     
323
     
7,279
     
7,602
 
Unallocated
   
-
     
2,299
     
2,299
     
-
     
-
     
-
 
Total
 
$
1,005
   
$
18,195
   
$
19,200
   
$
22,415
   
$
1,333,012
   
$
1,355,427
 
 
The following table presents the Company’s impaired loans disaggregated by class at March 31, 2015 and December 31, 2014 (in thousands).
   
March 31, 2015
   
December 31, 2014
 
   
Unpaid Principal Balance
   
Recorded Balance
   
Allowance Allocated
   
Unpaid Principal Balance
   
Recorded Balance
   
Allowance Allocated
 
With no allowance recorded:
                       
Commercial and industrial
 
$
3,723
   
$
3,723
   
$
-
   
$
4,833
   
$
4,833
   
$
-
 
Commercial real estate
   
10,721
     
10,302
     
-
     
10,632
     
10,214
     
-
 
Residential mortgages
   
1,919
     
1,773
     
-
     
1,645
     
1,516
     
-
 
Home equity
   
1,407
     
1,407
     
-
     
1,377
     
1,377
     
-
 
Consumer
   
214
     
214
     
-
     
137
     
137
     
-
 
Subtotal
   
17,984
     
17,419
     
-
     
18,624
     
18,077
     
-
 
                                                 
With an allowance recorded:
                                               
Commercial and industrial
   
42
     
41
     
10
     
57
     
56
     
16
 
Residential mortgages
   
3,877
     
3,878
     
771
     
3,906
     
3,906
     
809
 
Home equity
   
400
     
263
     
159
     
326
     
190
     
92
 
Consumer
   
182
     
184
     
88
     
185
     
186
     
88
 
Subtotal
   
4,501
     
4,366
     
1,028
     
4,474
     
4,338
     
1,005
 
Total
 
$
22,485
   
$
21,785
   
$
1,028
   
$
23,098
   
$
22,415
   
$
1,005
 
 
The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three months ended March 31, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

   
Three Months Ended March 31,
 
   
2015
   
2014
 
   
Average recorded
investment in
impaired loans
   
Interest income
recognized on
impaired loans
   
Average recorded
investment in
impaired loans
   
Interest income
recognized on
impaired loans
 
Commercial and industrial
 
$
4,551
   
$
33
   
$
7,567
   
$
107
 
Commercial real estate
   
10,208
     
50
     
11,558
     
99
 
Residential mortgages
   
5,411
     
38
     
5,036
     
36
 
Home equity
   
1,662
     
13
     
771
     
17
 
Consumer
   
383
     
3
     
170
     
2
 
Total
 
$
22,215
   
$
137
   
$
25,102
   
$
261
 

TDRs are modifications or renewals where the Company has granted a concession to a borrower in financial distress. The Company reviews all modifications and renewals for determination of TDR status. The Company allocated $745 thousand and $790 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of March 31, 2015 and December 31, 2014, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of default by meeting a lower payment requirement based upon their current cash flow. These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.

A total of $45 thousand and $100 thousand were committed to be advanced in connection with TDRs as of March 31, 2015 and December 31, 2014, respectively, representing the amount the Company is legally required to advance under existing loan agreements. These loans are not in default under the terms of the loan agreements and are accruing interest. It is the Company’s policy to evaluate advances on such loans on a case by case basis. Absent a legal obligation to advance pursuant to the terms of the loan agreement, the Company generally will not advance funds for which it has outstanding commitments, but may do so in certain circumstances.
 
Outstanding TDRs, disaggregated by class, at March 31, 2015 and December 31, 2014 are as follows (dollars in thousands):
   
March 31, 2015
   
December 31, 2014
 
TDRs Outstanding
 
Number of Loans
   
Outstanding Recorded Balance
   
Number of Loans
   
Outstanding Recorded Balance
 
Commercial and industrial
   
30
   
$
2,721
     
31
   
$
3,683
 
Commercial real estate
   
8
     
10,057
     
8
     
10,179
 
Residential mortgages
   
21
     
4,478
     
19
     
4,314
 
Home equity
   
5
     
1,208
     
5
     
1,216
 
Consumer
   
7
     
277
     
7
     
281
 
Total
   
71
   
$
18,741
     
70
   
$
19,673
 

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2015 and 2014 (dollars in thousands):

   
Three Months Ended March 31,
 
   
2015
   
2014
 
New TDRs
 
Number
of
Loans
   
Pre-Modification
Outstanding
Recorded
Balance
   
Post-Modification
Outstanding
Recorded
Balance
   
Number
of
Loans
   
Pre-Modification
Outstanding
Recorded
Balance
   
Post-Modification
Outstanding
Recorded
Balance
 
Commercial and industrial
   
1
   
$
12
   
$
12
     
3
   
$
377
   
$
377
 
Residential mortgages
   
2
     
194
     
199
     
-
     
-
     
-
 
Total
   
3
   
$
206
   
$
211
     
3
   
$
377
   
$
377
 

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2015 and 2014 (dollars in thousands).

   
Three Months Ended March 31,
 
   
2015
   
2014
 
Defaulted TDRs
 
Number
of Loans
   
Outstanding
Recorded
Balance
   
Number
of Loans
   
Outstanding
Recorded
Balance
 
Commercial real estate
   
-
   
$
-
     
2
   
$
1,596
 
Total
   
-
   
$
-
     
2
   
$
1,596
 

Not all loan modifications are TDRs. In some cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress. This could be the case if the Company is matching a competitor’s interest rate.

The following table presents a summary of non-performing assets for each period (in thousands):

   
March 31, 2015
   
December 31, 2014
 
Non-accrual loans
 
$
12,292
   
$
12,981
 
Non-accrual loans held for sale
   
-
     
-
 
Loans 90 days past due and still accruing
   
-
     
-
 
OREO
   
-
     
-
 
Total non-performing assets
 
$
12,292
   
$
12,981
 
TDRs accruing interest
 
$
9,418
   
$
9,380
 
TDRs non-accruing
 
$
9,323
   
$
10,293
 
 
At March 31, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

   
March 31, 2015
   
December 31, 2014
 
   
Non-accrual loans
   
% of
Total
   
Total Loans
   
% of Total Loans
   
Non-accrual loans
   
% of
Total
   
Total Loans
   
% of Total Loans
 
Commercial and industrial
 
$
3,035
     
24.7
%
 
$
178,812
     
0.2
%
 
$
4,060
     
31.3
%
 
$
177,813
     
0.3
%
Commercial real estate
   
6,647
     
54.1
     
579,873
     
0.5
     
6,556
     
50.5
     
560,524
     
0.5
 
Multifamily
   
-
     
-
     
322,229
     
-
     
-
     
-
     
309,666
     
-
 
Mixed use commercial
   
-
     
-
     
35,333
     
-
     
-
     
-
     
34,806
     
-
 
Real estate construction
   
-
     
-
     
24,608
     
-
     
-
     
-
     
26,206
     
-
 
Residential mortgages
   
2,074
     
16.9
     
184,977
     
0.2
     
2,020
     
15.6
     
187,828
     
0.1
 
Home equity
   
414
     
3.3
     
49,440
     
-
     
303
     
2.3
     
50,982
     
0.1
 
Consumer
   
122
     
1.0
     
6,888
     
-
     
42
     
0.3
     
7,602
     
-
 
Total
 
$
12,292
     
100.0
%
 
$
1,382,160
     
0.9
%
 
$
12,981
     
100.0
%
 
$
1,355,427
     
1.0
%

Additional interest income of approximately $180 thousand and $494 thousand would have been recorded during the three months ended March 31, 2015 and 2014, respectively, if non-accrual loans had performed in accordance with their original terms.

At March 31, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

   
Past Due
         
March 31, 2015
 
30 - 59 days
   
60 - 89 days
   
90 days and over
   
Total
   
Current
   
Total
 
Commercial and industrial
 
$
8
   
$
379
   
$
3,035
   
$
3,422
   
$
175,390
   
$
178,812
 
Commercial real estate
   
-
     
-
     
6,647
     
6,647
     
573,226
     
579,873
 
Multifamily
   
-
     
-
     
-
     
-
     
322,229
     
322,229
 
Mixed use commercial
   
-
     
-
     
-
     
-
     
35,333
     
35,333
 
Real estate construction
   
-
     
-
     
-
     
-
     
24,608
     
24,608
 
Residential mortgages
   
505
     
-
     
2,074
     
2,579
     
182,398
     
184,977
 
Home equity
   
199
     
-
     
414
     
613
     
48,827
     
49,440
 
Consumer
   
10
     
-
     
122
     
132
     
6,756
     
6,888
 
Total
 
$
722
   
$
379
   
$
12,292
   
$
13,393
   
$
1,368,767
   
$
1,382,160
 
% of Total Loans
   
0.1
%
   
0.0
%
   
0.9
%
   
1.0
%
   
99.0
%
   
100.0
%

   
Past Due
         
December 31, 2014
 
30 - 59 days
   
60 - 89 days
   
90 days and over
   
Total
   
Current
   
Total
 
Commercial and industrial
 
$
52
   
$
241
   
$
4,060
   
$
4,353
   
$
173,460
   
$
177,813
 
Commercial real estate
   
-
     
-
     
6,556
     
6,556
     
553,968
     
560,524
 
Multifamily
   
-
     
-
     
-
     
-
     
309,666
     
309,666
 
Mixed use commercial
   
-
     
-
     
-
     
-
     
34,806
     
34,806
 
Real estate construction
   
-
     
-
     
-
     
-
     
26,206
     
26,206
 
Residential mortgages
   
822
     
-
     
2,020
     
2,842
     
184,986
     
187,828
 
Home equity
   
-
     
112
     
303
     
415
     
50,567
     
50,982
 
Consumer
   
59
     
77
     
42
     
178
     
7,424
     
7,602
 
Total
 
$
933
   
$
430
   
$
12,981
   
$
14,344
   
$
1,341,083
   
$
1,355,427