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EX-31.1 - EXHIBIT 31.1 - SUFFOLK BANCORPex31_1.htm

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

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 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 ý    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 ý    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 ý
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 ý

As of July 15, 2015, there were 11,779,468 shares of registrant’s Common Stock outstanding.
 


SUFFOLK BANCORP
Form 10-Q
For the Quarterly Period Ended June 30, 2015

Table of Contents
 
   
Page
 
PART I
 
     
Item 1.
Financial Statements
 
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
28
     
Item 3.
43
     
Item 4.
43
     
 
PART II
 
     
Item 1.
43
     
Item 1A.
43
     
Item 2.
44
     
Item 3.
44
     
Item 4.
44
     
Item 5.
44
     
Item 6.
44
     
 
45
 
PART I
ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
June 30, 2015 and December 31, 2014
(dollars in thousands, except per share data)

   
June 30, 2015
   
December 31, 2014
 
ASSETS
       
Cash and cash equivalents
       
Cash and non-interest-bearing deposits due from banks
 
$
78,344
   
$
41,140
 
Interest-bearing deposits due from banks
   
18,650
     
13,376
 
Federal funds sold
   
-
     
1,000
 
Total cash and cash equivalents
   
96,994
     
55,516
 
Interest-bearing time deposits in other banks
   
-
     
10,000
 
Federal Reserve and Federal Home Loan Bank stock and other investments
   
6,177
     
8,600
 
Investment securities:
               
Available for sale, at fair value
   
273,837
     
298,670
 
Held to maturity (fair value of $65,851 and $64,796, respectively)
   
63,618
     
62,270
 
Total investment securities
   
337,455
     
360,940
 
Loans
   
1,476,626
     
1,355,427
 
Allowance for loan losses
   
20,051
     
19,200
 
Net loans
   
1,456,575
     
1,336,227
 
Loans held for sale
   
3,132
     
26,495
 
Premises and equipment, net
   
23,601
     
23,641
 
Bank owned life insurance
   
45,721
     
45,109
 
Deferred taxes
   
15,681
     
15,714
 
Accrued interest and loan fees receivable
   
5,774
     
5,676
 
Goodwill and other intangibles
   
2,992
     
2,991
 
Other assets
   
4,118
     
4,374
 
TOTAL ASSETS
 
$
1,998,220
   
$
1,895,283
 
                 
LIABILITIES & STOCKHOLDERS' EQUITY
               
Demand deposits
 
$
766,444
   
$
683,634
 
Savings, N.O.W. and money market deposits
   
709,450
     
653,667
 
Subtotal core deposits
   
1,475,894
     
1,337,301
 
Time deposits
   
242,500
     
218,759
 
Total deposits
   
1,718,394
     
1,556,060
 
Borrowings
   
65,000
     
130,000
 
Unfunded pension liability
   
6,081
     
6,303
 
Capital leases
   
4,455
     
4,511
 
Other liabilities
   
13,139
     
15,676
 
TOTAL LIABILITIES
   
1,807,069
     
1,712,550
 
COMMITMENTS AND CONTINGENT LIABILITIES
               
STOCKHOLDERS' EQUITY
               
Common stock (par value $2.50; 15,000,000 shares authorized; 13,945,208 shares and 13,836,508 shares issued at June 30, 2015 and December 31, 2014, respectively; 11,779,470 shares and 11,670,770 shares outstanding at June 30, 2015 and December 31, 2014, respectively)
   
34,863
     
34,591
 
Surplus
   
45,102
     
44,230
 
Retained earnings
   
123,891
     
116,169
 
Treasury stock at par (2,165,738 shares)
   
(5,414
)
   
(5,414
)
Accumulated other comprehensive loss, net of tax
   
(7,291
)
   
(6,843
)
TOTAL STOCKHOLDERS' EQUITY
   
191,151
     
182,733
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
1,998,220
   
$
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 and Six Months Ended June 30, 2015 and 2014
(dollars in thousands, except per share data)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2015
   
2014
   
2015
   
2014
 
INTEREST INCOME
               
Loans and loan fees
 
$
15,995
   
$
13,203
   
$
30,564
   
$
26,080
 
U.S. Government agency obligations
   
531
     
591
     
1,072
     
1,219
 
Obligations of states and political subdivisions
   
1,276
     
1,489
     
2,611
     
2,994
 
Collateralized mortgage obligations
   
176
     
224
     
358
     
474
 
Mortgage-backed securities
   
443
     
500
     
888
     
1,001
 
Corporate bonds
   
45
     
87
     
83
     
177
 
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks
   
20
     
42
     
43
     
88
 
Dividends
   
90
     
35
     
150
     
73
 
Total interest income
   
18,576
     
16,171
     
35,769
     
32,106
 
INTEREST EXPENSE
                               
Savings, N.O.W. and money market deposits
   
294
     
287
     
568
     
579
 
Time deposits
   
353
     
337
     
647
     
682
 
Borrowings
   
108
     
5
     
216
     
5
 
Total interest expense
   
755
     
629
     
1,431
     
1,266
 
Net interest income
   
17,821
     
15,542
     
34,338
     
30,840
 
Provision for loan losses
   
-
     
250
     
250
     
500
 
Net interest income after provision for loan losses
   
17,821
     
15,292
     
34,088
     
30,340
 
NON-INTEREST INCOME
                               
Service charges on deposit accounts
   
823
     
944
     
1,570
     
1,947
 
Other service charges, commissions and fees
   
680
     
892
     
1,273
     
1,571
 
Fiduciary fees
   
-
     
280
     
-
     
559
 
Net gain (loss) on sale of securities available for sale
   
160
     
(23
)
   
186
     
(23
)
Net gain on sale of portfolio loans
   
-
     
-
     
198
     
-
 
Net gain on sale of mortgage loans originated for sale
   
61
     
70
     
205
     
163
 
Net gain on sale of premises and equipment
   
-
     
110
     
-
     
752
 
Income from bank owned life insurance
   
303
     
366
     
612
     
720
 
Other operating income
   
23
     
39
     
97
     
81
 
Total non-interest income
   
2,050
     
2,678
     
4,141
     
5,770
 
OPERATING EXPENSES
                               
Employee compensation and benefits
   
8,516
     
8,488
     
17,122
     
17,349
 
Occupancy expense
   
1,373
     
1,411
     
2,835
     
2,846
 
Equipment expense
   
404
     
434
     
789
     
883
 
Consulting and professional services
   
544
     
639
     
882
     
1,190
 
FDIC assessment
   
286
     
268
     
576
     
535
 
Data processing
   
514
     
559
     
1,084
     
1,132
 
Branch consolidation credits
   
-
     
(279
)
   
-
     
(449
)
Other operating expenses
   
1,537
     
1,632
     
2,994
     
2,975
 
Total operating expenses
   
13,174
     
13,152
     
26,282
     
26,461
 
Income before income tax expense
   
6,697
     
4,818
     
11,947
     
9,649
 
Income tax expense
   
1,579
     
1,047
     
2,820
     
2,158
 
NET INCOME
 
$
5,118
   
$
3,771
   
$
9,127
   
$
7,491
 
EARNINGS PER COMMON SHARE - BASIC
 
$
0.44
   
$
0.33
   
$
0.78
   
$
0.65
 
EARNINGS PER COMMON SHARE - DILUTED
 
$
0.43
   
$
0.32
   
$
0.77
   
$
0.64
 
WEIGHTED AVERAGE COMMON SHARES - BASIC
   
11,748,068
     
11,575,322
     
11,721,396
     
11,574,174
 
WEIGHTED AVERAGE COMMON SHARES - DILUTED
   
11,822,562
     
11,647,921
     
11,793,307
     
11,639,298
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.06
   
$
-
   
$
0.12
   
$
-
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three and Six Months Ended June 30, 2015 and 2014
(in thousands)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Net income
 
$
5,118
   
$
3,771
   
$
9,127
   
$
7,491
 
Other comprehensive (loss) income, net of tax and reclassification adjustments:
                               
Change in unrealized (loss) gain on securities available for sale arising during the period, net of tax of ($1,049), $1,586, ($346) and $4,267, respectively
   
(1,604
)
   
2,371
     
(529
)
   
7,071
 
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $26, ($307), $53 and ($1,227), respectively
   
40
     
(278
)
   
81
     
(1,890
)
Total other comprehensive (loss) income, net of tax
   
(1,564
)
   
2,093
     
(448
)
   
5,181
 
Total comprehensive income
 
$
3,554
   
$
5,864
   
$
8,679
   
$
12,672
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
For the Six Months Ended June 30, 2015 and 2014
(in thousands, except per share data)

   
Six Months Ended June 30,
 
   
2015
   
2014
 
Common stock
       
Balance, January 1
 
$
34,591
   
$
34,348
 
Dividend reinvestment (15,249 shares issued in 2015)
   
38
     
-
 
Stock options exercised (32,667 and 3,334 shares issued, respectively)
   
82
     
8
 
Stock-based compensation (60,784 and 76,750 net shares issued, respectively)
   
152
     
192
 
Ending balance
   
34,863
     
34,548
 
Surplus
               
Balance, January 1
   
44,230
     
43,280
 
Dividend reinvestment
   
307
     
-
 
Stock options exercised
   
380
     
42
 
Stock-based compensation
   
185
     
193
 
Ending balance
   
45,102
     
43,515
 
Retained earnings
               
Balance, January 1
   
116,169
     
102,273
 
Net income
   
9,127
     
7,491
 
Cash dividends on common stock ($0.12 per share in 2015)
   
(1,405
)
   
-
 
Ending balance
   
123,891
     
109,764
 
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 (loss) income
   
(448
)
   
5,181
 
Ending balance
   
(7,291
)
   
(2,108
)
Total stockholders' equity
 
$
191,151
   
$
180,305
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
SUFFOLK BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 2015 and 2014
(in thousands)

   
Six Months Ended June 30,
 
   
2015
   
2014
 
NET INCOME
 
$
9,127
   
$
7,491
 
ADJUSTMENTS TO RECONCILE NET INCOME
               
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
               
Provision for loan losses
   
250
     
500
 
Depreciation and amortization
   
1,146
     
1,194
 
Stock-based compensation - net
   
337
     
385
 
Net amortization of premiums
   
583
     
585
 
Originations of mortgage loans held for sale
   
(22,689
)
   
(7,661
)
Proceeds from sale of mortgage loans originated for sale
   
22,413
     
7,426
 
Gain on sale of mortgage loans originated for sale
   
(205
)
   
(163
)
Gain on sale of portfolio loans
   
(198
)
   
-
 
Increase in other intangibles
   
(1
)
   
(8
)
Deferred tax expense (benefit)
   
327
     
(43
)
Increase in accrued interest and loan fees receivable
   
(98
)
   
(166
)
Decrease (increase) in other assets
   
256
     
(905
)
Adjustment to unfunded pension liability
   
(222
)
   
(183
)
Decrease in other liabilities
   
(2,537
)
   
(5,594
)
Income from bank owned life insurance
   
(612
)
   
(720
)
Gain on sale of premises and equipment
   
-
     
(752
)
Net (gain) loss on sale of securities available for sale
   
(186
)
   
23
 
Net cash provided by operating activities
   
7,691
     
1,409
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Principal payments on investment securities
   
2,886
     
6,880
 
Proceeds from sale of investment securities - available for sale
   
7,003
     
20,604
 
Maturities of investment securities - available for sale
   
20,530
     
11,955
 
Purchases of investment securities - available for sale
   
(6,800
)
   
(800
)
Maturities of investment securities - held to maturity
   
1,727
     
841
 
Purchases of investment securities -  held to maturity
   
(3,000
)
   
(2,834
)
Decrease in interest-bearing time deposits in other banks
   
10,000
     
-
 
Decrease (increase) in Federal Reserve and Federal Home Loan Bank stock and other investments
   
2,423
     
(338
)
Proceeds from sale of portfolio loans
   
23,986
     
-
 
Loan originations - net
   
(120,542
)
   
(125,933
)
Proceeds from sale of premises and equipment
   
-
     
1,064
 
Increase in bank owned life insurance
   
-
     
(5,000
)
Purchases of premises and equipment - net
   
(1,106
)
   
(315
)
Net cash used in investing activities
   
(62,893
)
   
(93,876
)
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase in deposit accounts
   
162,334
     
58,142
 
Net decrease in short-term borrowings
   
(80,000
)
   
-
 
Net increase in long-term borrowings
   
15,000
     
-
 
Proceeds from stock options exercised
   
462
     
50
 
Cash dividends paid on common stock
   
(1,405
)
   
-
 
Proceeds from shares issued under the dividend reinvestment plan
   
345
     
-
 
Decrease  in capital lease payable
   
(56
)
   
(49
)
Net cash provided by financing activities
   
96,680
     
58,143
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
41,478
     
(34,324
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
55,516
     
132,352
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
96,994
   
$
98,028
 
SUPPLEMENTAL DATA:
               
Interest paid
 
$
1,381
   
$
1,271
 
Income taxes paid
 
$
2,561
   
$
3,641
 
Investment securities transferred from available for sale to held to maturity
 
$
-
   
$
48,147
 

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 June 30, 2015, its condensed consolidated statements of income for the three and six months ended June 30, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the six months ended June 30, 2015 and 2014 and its condensed consolidated statements of cash flows for the six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2015 and 2014 follows.

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Weighted average common shares outstanding
   
11,630,056
     
11,575,322
     
11,616,565
     
11,574,174
 
Weighted average unvested restricted shares
   
118,012
     
-
     
104,831
     
-
 
Weighted average shares for basic earnings per share
   
11,748,068
     
11,575,322
     
11,721,396
     
11,574,174
 
Additional diluted shares:
                               
Stock options
   
74,494
     
72,599
     
71,911
     
65,124
 
Weighted average shares for diluted earnings per share
   
11,822,562
     
11,647,921
     
11,793,307
     
11,639,298
 
 
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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. After the FASB’s vote on July 9, 2015 to defer the ASU’s effective date for one year, the ASU is effective for annual periods beginning after December 15, 2017, 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). Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On May 12, 2015, the FASB issued an exposure draft proposing amendments that would not change the core principles of the standard, but would clarify the accounting for licenses of intellectual property, as well as the identification of performance obligations in a contract.

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 and six months ended June 30, 2015 and 2014 follow (in thousands).

   
Three Months Ended June 30, 2015
   
Three Months Ended June 30, 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
   
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
 
$
3,712
   
$
(1,764
)
 
$
(7,675
)
 
$
(5,727
)
 
$
605
   
$
(1,612
)
 
$
(3,194
)
 
$
(4,201
)
Other comprehensive (loss) income before reclassifications
   
(1,507
)
   
-
     
-
     
(1,507
)
   
2,357
     
(310
)
   
-
     
2,047
 
Amounts reclassified from AOCI
   
(97
)
   
40
     
-
     
(57
)
   
14
     
32
     
-
     
46
 
Net other comprehensive (loss) income
   
(1,604
)
   
40
     
-
     
(1,564
)
   
2,371
     
(278
)
   
-
     
2,093
 
Ending balance
 
$
2,108
   
$
(1,724
)
 
$
(7,675
)
 
$
(7,291
)
 
$
2,976
   
$
(1,890
)
 
$
(3,194
)
 
$
(2,108
)
 
   
Six Months Ended June 30, 2015
   
Six Months Ended June 30, 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
   
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
)
 
$
(4,095
)
 
$
-
   
$
(3,194
)
 
$
(7,289
)
Other comprehensive (loss) income before reclassifications
   
(417
)
   
-
     
-
     
(417
)
   
7,057
     
(1,943
)
   
-
     
5,114
 
Amounts reclassified from AOCI
   
(112
)
   
81
     
-
     
(31
)
   
14
     
53
     
-
     
67
 
Net other comprehensive (loss) income
   
(529
)
   
81
     
-
     
(448
)
   
7,071
     
(1,890
)
   
-
     
5,181
 
Ending balance
 
$
2,108
   
$
(1,724
)
 
$
(7,675
)
 
$
(7,291
)
 
$
2,976
   
$
(1,890
)
 
$
(3,194
)
 
$
(2,108
)
 
Reclassifications out of AOCI for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

   
Amount Reclassified from AOCI
   
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
Affected Line Item in the Statement
Details about AOCI Components
 
2015
   
2014
   
2015
   
2014
 
Where Net Income is Presented
Unrealized gains and losses on available for sale securities
 
$
160
   
$
(23
)
 
$
186
   
$
(23
)
Net gain (loss) on sale of securities available for sale
                                        
Unrealized losses on securities transferred from available for sale to held to maturity
   
(67
)
   
(54
)
   
(134
)
   
(86
)
Interest income - U.S. Government agency obligations
     
(36
)
   
31
     
(21
)
   
42
 
Income tax expense
Total, net of tax
 
$
57
   
$
(46
)
 
$
31
   
$
(67
)
 
 
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 June 30, 2015 and December 31, 2014 were as follows (in thousands):
   
June 30, 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
 
$
38,975
   
$
-
   
$
(737
)
 
$
38,238
   
$
42,474
   
$
-
   
$
(897
)
 
$
41,577
 
Obligations of states and political subdivisions
   
114,278
     
5,664
     
-
     
119,942
     
131,300
     
6,469
     
-
     
137,769
 
Collateralized mortgage obligations
   
20,824
     
175
     
(430
)
   
20,569
     
22,105
     
423
     
(531
)
   
21,997
 
Mortgage-backed securities
   
90,276
     
28
     
(1,216
)
   
89,088
     
92,095
     
88
     
(1,264
)
   
90,919
 
Corporate bonds
   
6,000
     
-
     
-
     
6,000
     
6,336
     
90
     
(18
)
   
6,408
 
Total available for sale securities
   
270,353
     
5,867
     
(2,383
)
   
273,837
     
294,310
     
7,070
     
(2,710
)
   
298,670
 
Held to maturity:
                                                               
U.S. Government agency securities
   
48,499
     
1,478
     
(10
)
   
49,967
     
48,365
     
1,717
     
-
     
50,082
 
Obligations of states and political subdivisions
   
12,119
     
642
     
-
     
12,761
     
13,905
     
809
     
-
     
14,714
 
Corporate bonds
   
3,000
     
123
     
-
     
3,123
     
-
     
-
     
-
     
-
 
Total held to maturity securities
   
63,618
     
2,243
     
(10
)
   
65,851
     
62,270
     
2,526
     
-
     
64,796
 
Total investment securities
 
$
333,971
   
$
8,110
   
$
(2,393
)
 
$
339,688
   
$
356,580
   
$
9,596
   
$
(2,710
)
 
$
363,466
 

At June 30, 2015 and December 31, 2014, investment securities carried at $268 million and $245 million, respectively, were pledged primarily 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 June 30, 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.

   
June 30, 2015
 
   
Amortized
Cost
   
Fair
Value
 
Securities available for sale:
       
Due in one year or less
 
$
30,745
   
$
31,271
 
Due from one to five years
   
142,658
     
146,416
 
Due from five to ten years
   
96,950
     
96,150
 
Total securities available for sale
   
270,353
     
273,837
 
Securities held to maturity:
               
Due in one year or less
   
837
     
866
 
Due from one to five years
   
4,593
     
4,910
 
Due from five to ten years
   
32,097
     
32,711
 
Due after ten years
   
26,091
     
27,364
 
Total securities held to maturity
   
63,618
     
65,851
 
Total investment securities
 
$
333,971
   
$
339,688
 
 
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 June 30,
   
Six Months Ended June 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Proceeds
 
$
6,472
   
$
20,604
   
$
7,003
   
$
20,604
 
                                 
Gross realized gains
 
$
175
   
$
229
   
$
201
   
$
229
 
Gross realized losses
   
15
     
252
     
15
     
252
 
Net realized gains (losses)
 
$
160
   
$
(23
)
 
$
186
   
$
(23
)

Information pertaining to securities with unrealized losses at June 30, 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
 
June 30, 2015
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
U.S. Government agency securities
 
$
23,487
   
$
(341
)
 
$
19,593
   
$
(406
)
 
$
43,080
   
$
(747
)
Collateralized mortgage obligations
   
-
     
-
     
8,274
     
(430
)
   
8,274
     
(430
)
Mortgage-backed securities
   
50,848
     
(621
)
   
26,604
     
(595
)
   
77,452
     
(1,216
)
Total
 
$
74,335
   
$
(962
)
 
$
54,471
   
$
(1,431
)
 
$
128,806
   
$
(2,393
)

   
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
)
 
All securities with unrealized losses for twelve months or longer at June 30, 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 June 30, 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. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at June 30, 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 and six months ended June 30, 2015, $71 thousand and $141 thousand, respectively, in such carrying costs was expensed. For the three and six months ended June 30, 2014, $56 thousand and $115 thousand, respectively, 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 both June 30, 2015 and December 31, 2014, 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 June 30, 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 June 30, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

   
June 30, 2015
   
December 31, 2014
 
Commercial and industrial
 
$
196,881
   
$
177,813
 
Commercial real estate
   
598,866
     
560,524
 
Multifamily
   
361,309
     
309,666
 
Mixed use commercial
   
50,372
     
34,806
 
Real estate construction
   
31,628
     
26,206
 
Residential mortgages
   
182,828
     
187,828
 
Home equity
   
48,298
     
50,982
 
Consumer
   
6,444
     
7,602
 
Gross loans
   
1,476,626
     
1,355,427
 
Allowance for loan losses
   
(20,051
)
   
(19,200
)
Net loans at end of period
 
$
1,456,575
   
$
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 June 30, 2015
   
Three Months Ended June 30, 2014
 
   
Balance at
beginning of
period
   
Charge-offs
   
Recoveries
   
(Credit)
provision
for loan
losses
   
Balance at
end of
period
   
Balance at
 beginning of
period
   
Charge-offs
   
Recoveries
   
Provision
(credit) for
loan losses
   
Balance at
end of
period
 
Commercial and industrial
 
$
1,998
   
$
-
   
$
693
   
$
(618
)
 
$
2,073
   
$
2,481
   
$
(200
)
 
$
210
   
$
441
   
$
2,932
 
Commercial real estate
   
7,352
     
-
     
11
     
(1,363
)
   
6,000
     
7,208
     
-
     
485
     
206
     
7,899
 
Multifamily
   
4,467
     
-
     
-
     
(402
)
   
4,065
     
2,640
     
-
     
-
     
(196
)
   
2,444
 
Mixed use commercial
   
273
     
-
     
-
     
192
     
465
     
87
     
-
     
-
     
125
     
212
 
Real estate construction
   
360
     
-
     
-
     
118
     
478
     
217
     
-
     
-
     
13
     
230
 
Residential mortgages
   
2,618
     
-
     
16
     
(63
)
   
2,571
     
2,627
     
(32
)
   
4
     
51
     
2,650
 
Home equity
   
728
     
-
     
5
     
(61
)
   
672
     
718
     
-
     
18
     
25
     
761
 
Consumer
   
155
     
(9
)
   
10
     
(6
)
   
150
     
186
     
(2
)
   
8
     
(26
)
   
166
 
Unallocated
   
1,374
     
-
     
-
     
2,203
     
3,577
     
1,573
     
-
     
-
     
(389
)
   
1,184
 
Total
 
$
19,325
   
$
(9
)
 
$
735
   
$
-
   
$
20,051
   
$
17,737
   
$
(234
)
 
$
725
   
$
250
   
$
18,478
 
 
   
Six Months Ended June 30, 2015
   
Six Months Ended June 30, 2014
 
   
Balance at
beginning of
 period
   
Charge-offs
   
Recoveries
   
(Credit)
 provision
 for loan
 losses
   
Balance at
end of
period
   
Balance at
beginning of
period
   
Charge-offs
   
Recoveries
   
Provision
(credit) for
loan losses
   
Balance at
end of
period
 
Commercial and industrial
 
$
1,560
   
$
(492
)
 
$
1,036
   
$
(31
)
 
$
2,073
   
$
2,615
   
$
(315
)
 
$
503
   
$
129
   
$
2,932
 
Commercial real estate
   
6,777
     
-
     
18
     
(795
)
   
6,000
     
6,572
     
-
     
497
     
830
     
7,899
 
Multifamily
   
4,018
     
-
     
-
     
47
     
4,065
     
2,159
     
-
     
-
     
285
     
2,444
 
Mixed use commercial
   
261
     
-
     
-
     
204
     
465
     
54
     
-
     
-
     
158
     
212
 
Real estate construction
   
383
     
-
     
-
     
95
     
478
     
88
     
-
     
-
     
142
     
230
 
Residential mortgages
   
3,027
     
-
     
27
     
(483
)
   
2,571
     
2,463
     
(32
)
   
8
     
211
     
2,650
 
Home equity
   
709
     
-
     
7
     
(44
)
   
672
     
745
     
-
     
45
     
(29
)
   
761
 
Consumer
   
166
     
(10
)
   
15
     
(21
)
   
150
     
241
     
(4
)
   
13
     
(84
)
   
166
 
Unallocated
   
2,299
     
-
     
-
     
1,278
     
3,577
     
2,326
     
-
     
-
     
(1,142
)
   
1,184
 
Total
 
$
19,200
   
$
(502
)
 
$
1,103
   
$
250
   
$
20,051
   
$
17,263
   
$
(351
)
 
$
1,066
   
$
500
   
$
18,478
 
 
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 June 30, 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 June 30, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

   
Allowance for Loan Losses
   
Loan Balances
 
June 30, 2015
 
Individually evaluated for impairment
   
Collectively evaluated for impairment
   
Ending balance
   
Individually evaluated for impairment
   
Collectively evaluated for impairment
   
Ending balance
 
Commercial and industrial
 
$
5
   
$
2,068
   
$
2,073
   
$
2,848
   
$
194,033
   
$
196,881
 
Commercial real estate
   
-
     
6,000
     
6,000
     
5,357
     
593,509
     
598,866
 
Multifamily
   
-
     
4,065
     
4,065
     
-
     
361,309
     
361,309
 
Mixed use commercial
   
-
     
465
     
465
     
-
     
50,372
     
50,372
 
Real estate construction
   
-
     
478
     
478
     
-
     
31,628
     
31,628
 
Residential mortgages
   
779
     
1,792
     
2,571
     
5,639
     
177,189
     
182,828
 
Home equity
   
158
     
514
     
672
     
1,664
     
46,634
     
48,298
 
Consumer
   
85
     
65
     
150
     
392
     
6,052
     
6,444
 
Unallocated
   
-
     
3,577
     
3,577
     
-
     
-
     
-
 
Total
 
$
1,027
   
$
19,024
   
$
20,051
   
$
15,900
   
$
1,460,726
   
$
1,476,626
 
 
   
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 June 30, 2015 and December 31, 2014 (in thousands).

   
June 30, 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
 
$
2,808
   
$
2,808
   
$
-
   
$
4,833
   
$
4,833
   
$
-
 
Commercial real estate
   
5,775
     
5,357
     
-
     
10,632
     
10,214
     
-
 
Residential mortgages
   
2,084
     
1,955
     
-
     
1,645
     
1,516
     
-
 
Home equity
   
1,402
     
1,402
     
-
     
1,377
     
1,377
     
-
 
Consumer
   
212
     
212
     
-
     
137
     
137
     
-
 
Subtotal
   
12,281
     
11,734
     
-
     
18,624
     
18,077
     
-
 
                                                 
With an allowance recorded:
                                               
Commercial and industrial
   
41
     
40
     
5
     
57
     
56
     
16
 
Residential mortgages
   
3,684
     
3,684
     
779
     
3,906
     
3,906
     
809
 
Home equity
   
398
     
262
     
158
     
326
     
190
     
92
 
Consumer
   
180
     
180
     
85
     
185
     
186
     
88
 
Subtotal
   
4,303
     
4,166
     
1,027
     
4,474
     
4,338
     
1,005
 
Total
 
$
16,584
   
$
15,900
   
$
1,027
   
$
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 and six months ended June 30, 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 June 30,
   
Six Months Ended June 30,
 
   
2015
   
2014
   
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
   
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
 
$
3,170
   
$
226
   
$
7,290
   
$
292
   
$
3,857
   
$
259
   
$
7,428
   
$
551
 
Commercial real estate
   
9,461
     
549
     
11,167
     
56
     
9,832
     
599
     
11,361
     
155
 
Residential mortgages
   
5,644
     
41
     
5,021
     
40
     
5,528
     
79
     
5,028