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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: SEPTEMBER 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
 
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 October 15, 2015, there were 11,792,756 shares of registrant’s Common Stock outstanding.
 


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

Table of Contents

   
Page
 
PART I
 
     
Item 1.
Financial Statements
 
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
28
     
Item 3.
42
     
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)
September 30, 2015 and December 31, 2014
(dollars in thousands, except per share data)

   
September 30, 2015
   
December 31, 2014
 
ASSETS
       
Cash and cash equivalents
       
Cash and non-interest-bearing deposits due from banks
 
$
79,049
   
$
41,140
 
Interest-bearing deposits due from banks
   
18,751
     
13,376
 
Federal funds sold
   
-
     
1,000
 
Total cash and cash equivalents
   
97,800
     
55,516
 
Interest-bearing time deposits in other banks
   
-
     
10,000
 
Federal Reserve and Federal Home Loan Bank stock and other investments
   
5,581
     
8,600
 
Investment securities:
               
Available for sale, at fair value
   
261,232
     
298,670
 
Held to maturity (fair value of $69,402 and $64,796, respectively)
   
66,427
     
62,270
 
Total investment securities
   
327,659
     
360,940
 
Loans
   
1,559,520
     
1,355,427
 
Allowance for loan losses
   
20,315
     
19,200
 
Net loans
   
1,539,205
     
1,336,227
 
Loans held for sale
   
745
     
26,495
 
Premises and equipment, net
   
23,144
     
23,641
 
Bank owned life insurance
   
46,027
     
45,109
 
Deferred taxes
   
14,422
     
15,714
 
Accrued interest and loan fees receivable
   
6,349
     
5,676
 
Goodwill and other intangibles
   
2,915
     
2,991
 
Other assets
   
2,997
     
4,374
 
TOTAL ASSETS
 
$
2,066,844
   
$
1,895,283
 
                 
LIABILITIES & STOCKHOLDERS' EQUITY
               
Demand deposits
 
$
801,212
   
$
683,634
 
Savings, N.O.W. and money market deposits
   
759,080
     
653,667
 
Subtotal core deposits
   
1,560,292
     
1,337,301
 
Time deposits
   
235,539
     
218,759
 
Total deposits
   
1,795,831
     
1,556,060
 
Borrowings
   
50,000
     
130,000
 
Unfunded pension liability
   
5,969
     
6,303
 
Capital leases
   
4,426
     
4,511
 
Other liabilities
   
14,078
     
15,676
 
TOTAL LIABILITIES
   
1,870,304
     
1,712,550
 
COMMITMENTS AND CONTINGENT LIABILITIES
               
STOCKHOLDERS' EQUITY
               
Common stock (par value $2.50; 15,000,000 shares authorized; 13,956,250 shares and 13,836,508 shares issued at September 30, 2015 and December 31, 2014, respectively; 11,790,512 shares and 11,670,770 shares outstanding at September 30, 2015 and December 31, 2014, respectively)
   
34,890
     
34,591
 
Surplus
   
45,656
     
44,230
 
Retained earnings
   
127,636
     
116,169
 
Treasury stock at par (2,165,738 shares)
   
(5,414
)
   
(5,414
)
Accumulated other comprehensive loss, net of tax
   
(6,228
)
   
(6,843
)
TOTAL STOCKHOLDERS' EQUITY
   
196,540
     
182,733
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
2,066,844
   
$
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 Nine Months Ended September 30, 2015 and 2014
(dollars in thousands, except per share data)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2015
   
2014
   
2015
   
2014
 
INTEREST INCOME
               
Loans and loan fees
 
$
15,798
   
$
13,396
   
$
46,362
   
$
39,476
 
U.S. Government agency obligations
   
530
     
553
     
1,602
     
1,772
 
Obligations of states and political subdivisions
   
1,114
     
1,428
     
3,725
     
4,422
 
Collateralized mortgage obligations
   
149
     
198
     
507
     
672
 
Mortgage-backed securities
   
441
     
474
     
1,329
     
1,475
 
Corporate bonds
   
96
     
38
     
179
     
215
 
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks
   
7
     
35
     
50
     
123
 
Dividends
   
71
     
42
     
221
     
115
 
Total interest income
   
18,206
     
16,164
     
53,975
     
48,270
 
INTEREST EXPENSE
                               
Savings, N.O.W. and money market deposits
   
338
     
291
     
906
     
870
 
Time deposits
   
396
     
322
     
1,043
     
1,004
 
Borrowings
   
94
     
2
     
310
     
7
 
Total interest expense
   
828
     
615
     
2,259
     
1,881
 
Net interest income
   
17,378
     
15,549
     
51,716
     
46,389
 
Provision for loan losses
   
350
     
250
     
600
     
750
 
Net interest income after provision for loan losses
   
17,028
     
15,299
     
51,116
     
45,639
 
NON-INTEREST INCOME
                               
Service charges on deposit accounts
   
749
     
887
     
2,319
     
2,834
 
Other service charges, commissions and fees
   
759
     
778
     
2,032
     
2,349
 
Fiduciary fees
   
-
     
265
     
-
     
824
 
Net gain (loss) on sale of securities available for sale
   
133
     
11
     
319
     
(12
)
Net gain on sale of portfolio loans
   
370
     
217
     
568
     
217
 
Net gain on sale of mortgage loans originated for sale
   
85
     
51
     
290
     
214
 
Net gain on sale of premises and equipment
   
-
     
-
     
-
     
752
 
Income from bank owned life insurance
   
306
     
316
     
918
     
1,036
 
Other operating income
   
25
     
25
     
122
     
106
 
Total non-interest income
   
2,427
     
2,550
     
6,568
     
8,320
 
OPERATING EXPENSES
                               
Employee compensation and benefits
   
7,980
     
8,628
     
25,102
     
25,977
 
Occupancy expense
   
1,401
     
1,295
     
4,236
     
4,141
 
Equipment expense
   
410
     
418
     
1,199
     
1,301
 
Consulting and professional services
   
609
     
693
     
1,491
     
1,883
 
FDIC assessment
   
226
     
202
     
802
     
737
 
Data processing
   
506
     
549
     
1,590
     
1,681
 
Branch consolidation credits
   
-
     
-
     
-
     
(449
)
Other operating expenses
   
1,536
     
1,451
     
4,530
     
4,426
 
Total operating expenses
   
12,668
     
13,236
     
38,950
     
39,697
 
Income before income tax expense
   
6,787
     
4,613
     
18,734
     
14,262
 
Income tax expense
   
1,864
     
875
     
4,684
     
3,033
 
NET INCOME
 
$
4,923
   
$
3,738
   
$
14,050
   
$
11,229
 
EARNINGS PER COMMON SHARE - BASIC
 
$
0.42
   
$
0.32
   
$
1.20
   
$
0.97
 
EARNINGS PER COMMON SHARE - DILUTED
 
$
0.42
   
$
0.32
   
$
1.19
   
$
0.96
 
WEIGHTED AVERAGE COMMON SHARES - BASIC
   
11,785,731
     
11,661,544
     
11,743,076
     
11,611,790
 
WEIGHTED AVERAGE COMMON SHARES - DILUTED
   
11,863,299
     
11,716,286
     
11,817,899
     
11,667,991
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.10
   
$
0.06
   
$
0.22
   
$
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 and Nine Months Ended September 30, 2015 and 2014
(in thousands)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Net income
 
$
4,923
   
$
3,738
   
$
14,050
   
$
11,229
 
                               
Other comprehensive income (loss), net of tax and reclassification adjustments:
                               
Change in unrealized gain (loss) on securities available for sale arising during the period, net of tax of $700, ($416), $354 and $3,851, respectively
   
1,008
     
(641
)
   
479
     
6,430
 
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $14, $26, $67 and ($1,201), respectively
   
55
     
40
     
136
     
(1,850
)
Total other comprehensive income (loss), net of tax
   
1,063
     
(601
)
   
615
     
4,580
 
Total comprehensive income
 
$
5,986
   
$
3,137
   
$
14,665
   
$
15,809
 

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

   
Nine Months Ended September 30,
 
   
2015
   
2014
 
Common stock
       
Balance, January 1
 
$
34,591
   
$
34,348
 
Dividend reinvestment (23,524 and 2,291 shares issued, respectively)
   
59
     
5
 
Stock options exercised (39,334 and 18,735 shares issued, respectively)
   
98
     
46
 
Stock-based compensation
   
142
     
184
 
Ending balance
   
34,890
     
34,583
 
Surplus
               
Balance, January 1
   
44,230
     
43,280
 
Dividend reinvestment
   
501
     
38
 
Stock options exercised
   
441
     
200
 
Stock-based compensation
   
484
     
416
 
Ending balance
   
45,656
     
43,934
 
Retained earnings
               
Balance, January 1
   
116,169
     
102,273
 
Net income
   
14,050
     
11,229
 
Cash dividends on common stock ($0.22 and $0.06 per share, respectively)
   
(2,583
)
   
(699
)
Ending balance
   
127,636
     
112,803
 
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
   
615
     
4,580
 
Ending balance
   
(6,228
)
   
(2,709
)
Total stockholders' equity
 
$
196,540
   
$
183,197
 

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

   
Nine Months Ended September 30,
 
   
2015
   
2014
 
NET INCOME
 
$
14,050
   
$
11,229
 
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
               
Provision for loan losses
   
600
     
750
 
Depreciation and amortization
   
1,740
     
1,775
 
Stock-based compensation - net
   
626
     
600
 
Net amortization of premiums
   
863
     
889
 
Originations of mortgage loans held for sale
   
(31,613
)
   
(10,745
)
Proceeds from sale of mortgage loans originated for sale
   
32,517
     
11,134
 
Gain on sale of mortgage loans originated for sale
   
(290
)
   
(214
)
Gain on sale of portfolio loans
   
(568
)
   
(217
)
Decrease (increase) in other intangibles
   
76
     
(9
)
Deferred tax expense (benefit)
   
872
     
(1,914
)
Increase in accrued interest and loan fees receivable
   
(673
)
   
(786
)
Decrease in other assets
   
1,377
     
613
 
Adjustment to unfunded pension liability
   
(334
)
   
(274
)
Decrease in other liabilities
   
(1,598
)
   
(3,133
)
Income from bank owned life insurance
   
(918
)
   
(1,036
)
Gain on sale of premises and equipment
   
-
     
(752
)
Net (gain) loss on sale of securities available for sale
   
(319
)
   
12
 
Net cash provided by operating activities
   
16,408
     
7,922
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Principal payments on investment securities - available for sale
   
8,030
     
9,692
 
Proceeds from sale of investment securities - available for sale
   
10,080
     
20,604
 
Maturities of investment securities - available for sale
   
26,505
     
20,807
 
Purchases of investment securities - available for sale
   
(6,800
)
   
(800
)
Maturities of investment securities - held to maturity
   
1,957
     
994
 
Purchases of investment securities -  held to maturity
   
(6,000
)
   
(3,434
)
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
   
3,019
     
(337
)
Proceeds from sale of portfolio loans
   
49,871
     
25,371
 
Loan originations - net
   
(227,745
)
   
(217,580
)
Proceeds from sale of premises and equipment
   
-
     
1,064
 
Increase in bank owned life insurance
   
-
     
(5,000
)
Purchases of premises and equipment - net
   
(1,243
)
   
(727
)
Net cash used in investing activities
   
(132,326
)
   
(149,346
)
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase in deposit accounts
   
239,771
     
70,708
 
Net (decrease) increase in short-term borrowings
   
(95,000
)
   
10,000
 
Net increase in long-term borrowings
   
15,000
     
-
 
Proceeds from stock options exercised
   
539
     
246
 
Cash dividends paid on common stock
   
(2,583
)
   
(699
)
Proceeds from shares issued under the dividend reinvestment plan
   
560
     
43
 
Decrease  in capital lease payable
   
(85
)
   
(74
)
Net cash provided by financing activities
   
158,202
     
80,224
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
42,284
     
(61,200
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
55,516
     
132,352
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
97,800
   
$
71,152
 
SUPPLEMENTAL DATA:
               
Interest paid
 
$
2,208
   
$
1,892
 
Income taxes paid
 
$
3,148
   
$
5,264
 
Loans transferred to held-for-sale
 
$
24,164
   
$
25,221
 
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 September 30, 2015, its condensed consolidated statements of income for the three and nine months ended September 30, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the nine months ended September 30, 2015 and 2014 and its condensed consolidated statements of cash flows for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2015 and 2014 follows.

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Weighted average common shares outstanding
   
11,674,697
     
11,586,564
     
11,636,155
     
11,578,350
 
Weighted average unvested restricted shares
   
111,034
     
74,980
     
106,921
     
33,440
 
Weighted average shares for basic earnings per share
   
11,785,731
     
11,661,544
     
11,743,076
     
11,611,790
 
Additional diluted shares:
                               
Stock options
   
77,568
     
54,742
     
74,823
     
56,201
 
Weighted average shares for diluted earnings per share
   
11,863,299
     
11,716,286
     
11,817,899
     
11,667,991
 

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. The FASB recently issued ASU 2015-14 to defer the effective date of the new revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017, 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). Early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. 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.

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 nine months ended September 30, 2015 and 2014 follow (in thousands).

   
Three Months Ended September 30, 2015
   
Three Months Ended September 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
 
$
2,108
   
$
(1,724
)
 
$
(7,675
)
 
$
(7,291
)
 
$
2,976
   
$
(1,890
)
 
$
(3,194
)
 
$
(2,108
)
Other comprehensive income (loss) before reclassifications
   
1,087
     
-
     
-
     
1,087
     
(634
)
   
(1
)
   
-
     
(635
)
Amounts reclassified from AOCI
   
(79
)
   
55
     
-
     
(24
)
   
(7
)
   
41
     
-
     
34
 
Net other comprehensive income (loss)
   
1,008
     
55
     
-
     
1,063
     
(641
)
   
40
     
-
     
(601
)
Ending balance
 
$
3,116
   
$
(1,669
)
 
$
(7,675
)
 
$
(6,228
)
 
$
2,335
   
$
(1,850
)
 
$
(3,194
)
 
$
(2,709
)
 
   
Nine Months Ended September 30, 2015
   
Nine Months Ended September 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 income (loss) before reclassifications
   
670
     
-
     
-
     
670
     
6,423
     
(1,944
)
   
-
     
4,479
 
Amounts reclassified from AOCI
   
(191
)
   
136
     
-
     
(55
)
   
7
     
94
     
-
     
101
 
Net other comprehensive income (loss)
   
479
     
136
     
-
     
615
     
6,430
     
(1,850
)
   
-
     
4,580
 
Ending balance
 
$
3,116
   
$
(1,669
)
 
$
(7,675
)
 
$
(6,228
)
 
$
2,335
   
$
(1,850
)
 
$
(3,194
)
 
$
(2,709
)
 
Reclassifications out of AOCI for the three and nine months ended September 30, 2015 and 2014 follow (in thousands).
 
   
Amount Reclassified from AOCI         
   
   
Three Months Ended September 30,  
   
Nine Months Ended September 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
 
$
133
   
$
11
   
$
319
   
$
(12
)
Net gain (loss) on sale of securities available for sale
                                                 
Unrealized losses on securities transferred from available for sale to held to maturity
   
(69
)
   
(67
)
   
(203
)
   
(153
)
Interest income - U.S. Government agency obligations
     
(40
)
   
22
     
(61
)
   
64
 
Income tax expense
Total, net of tax
 
$
24
   
$
(34
)
 
$
55
   
$
(101
)
 
 
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.

In 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 September 30, 2015 and December 31, 2014 were as follows (in thousands):
 
   
September 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
 
$
38,977
   
$
18
   
$
(201
)
 
$
38,794
   
$
42,474
   
$
-
   
$
(897
)
 
$
41,577
 
Obligations of states and political subdivisions
   
105,217
     
5,155
     
-
     
110,372
     
131,300
     
6,469
     
-
     
137,769
 
Collateralized mortgage obligations
   
16,547
     
48
     
(129
)
   
16,466
     
22,105
     
423
     
(531
)
   
21,997
 
Mortgage-backed securities
   
89,299
     
589
     
(258
)
   
89,630
     
92,095
     
88
     
(1,264
)
   
90,919
 
Corporate bonds
   
6,000
     
-
     
(30
)
   
5,970
     
6,336
     
90
     
(18
)
   
6,408
 
Total available for sale securities
   
256,040
     
5,810
     
(618
)
   
261,232
     
294,310
     
7,070
     
(2,710
)
   
298,670
 
Held to maturity:
                                                               
U.S. Government agency securities
   
48,568
     
2,290
     
-
     
50,858
     
48,365
     
1,717
     
-
     
50,082
 
Obligations of states and political subdivisions
   
11,859
     
633
     
-
     
12,492
     
13,905
     
809
     
-
     
14,714
 
Corporate bonds
   
6,000
     
52
     
-
     
6,052
     
-
     
-
     
-
     
-
 
Total held to maturity securities
   
66,427
     
2,975
     
-
     
69,402
     
62,270
     
2,526
     
-
     
64,796
 
Total investment securities
 
$
322,467
   
$
8,785
   
$
(618
)
 
$
330,634
   
$
356,580
   
$
9,596
   
$
(2,710
)
 
$
363,466
 
 
At September 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 September 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.

   
September 30, 2015
 
   
Amortized
Cost
   
Fair
Value
 
Securities available for sale:
       
Due in one year or less
 
$
29,275
   
$
29,688
 
Due from one to five years
   
134,171
     
138,558
 
Due from five to ten years
   
92,594
     
92,986
 
Total securities available for sale
   
256,040
     
261,232
 
Securities held to maturity:
               
Due in one year or less
   
836
     
859
 
Due from one to five years
   
4,363
     
4,650
 
Due from five to ten years
   
38,141
     
39,351
 
Due after ten years
   
23,087
     
24,542
 
Total securities held to maturity
   
66,427
     
69,402
 
Total investment securities
 
$
322,467
   
$
330,634
 
 
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 September 30,
   
Nine Months Ended September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Proceeds
 
$
3,077
   
$
-
   
$
10,080
   
$
20,604
 
                                 
Gross realized gains
 
$
133
   
$
11
   
$
334
   
$
240
 
Gross realized losses
   
-
     
-
     
(15
)
   
(252
)
Net realized gains (losses)
 
$
133
   
$
11
   
$
319
   
$
(12
)
 
Information pertaining to securities with unrealized losses at September 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
 
September 30, 2015
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
U.S. Government agency securities
 
$
13,941
   
$
(52
)
 
$
19,851
   
$
(149
)
 
$
33,792
   
$
(201
)
Collateralized mortgage obligations
   
-
     
-
     
8,447
     
(129
)
   
8,447
     
(129
)
Mortgage-backed securities
   
13,841
     
(79
)
   
18,495
     
(179
)
   
32,336
     
(258
)
Corporate bonds
   
5,970
     
(30
)
   
-
     
-
     
5,970
     
(30
)
Total
 
$
33,752
   
$
(161
)
 
$
46,793
   
$
(457
)
 
$
80,545
   
$
(618
)
 
 
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 September 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 September 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.

In conjunction with the sale of Visa Class B shares in 2013, 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 September 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 nine months ended September 30, 2015, $73 thousand and $214 thousand, respectively, in such carrying costs was expensed. For the three and nine months ended September 30, 2014, $57 thousand and $172 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 September 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 September 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 September 30, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

   
September 30, 2015
   
December 31, 2014
 
Commercial and industrial
 
$
181,116
   
$
177,813
 
Commercial real estate
   
648,132
     
560,524
 
Multifamily
   
392,921
     
309,666
 
Mixed use commercial
   
64,381
     
34,806
 
Real estate construction
   
32,896
     
26,206
 
Residential mortgages
   
186,545
     
187,828
 
Home equity
   
46,990
     
50,982
 
Consumer
   
6,539
     
7,602
 
Gross loans
   
1,559,520
     
1,355,427
 
Allowance for loan losses
   
(20,315
)
   
(19,200
)
Net loans at end of period
 
$
1,539,205
   
$
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 September 30, 2015
   
Three Months Ended September 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
   
(Credit) provision for loan losses
   
Balance at
end of
period
 
Commercial and industrial
 
$
2,073
   
$
(252
)
 
$
138
   
$
(62
)
 
$
1,897
   
$
2,932
   
$
(104
)
 
$
160
   
$
(1,121
)
 
$
1,867
 
Commercial real estate
   
6,000
     
-
     
10
     
420
     
6,430
     
7,899
     
-
     
11
     
(499
)
   
7,411
 
Multifamily
   
4,065
     
-
     
-
     
252
     
4,317
     
2,444
     
-
     
-
     
238
     
2,682
 
Mixed use commercial
   
465
     
-
     
-
     
129
     
594
     
212
     
-
     
-
     
(6
)
   
206
 
Real estate construction
   
478
     
-
     
-
     
8
     
486
     
230
     
-
     
-
     
36
     
266
 
Residential mortgages
   
2,571
     
-
     
4
     
120
     
2,695
     
2,650
     
-
     
4
     
193
     
2,847
 
Home equity
   
672
     
-
     
10
     
(6
)
   
676
     
761
     
-
     
3
     
(55
)
   
709
 
Consumer
   
150
     
(1
)
   
5
     
(29
)
   
125
     
166
     
(15
)
   
13
     
13
     
177
 
Unallocated
   
3,577
     
-
     
-
     
(482
)
   
3,095
     
1,184
     
-
     
-
     
1,451
     
2,635
 
Total
 
$
20,051
   
$
(253
)
 
$
167
   
$
350
   
$
20,315
   
$
18,478
   
$
(119
)
 
$
191
   
$
250
   
$
18,800
 
 
   
Nine Months Ended September 30, 2015
   
Nine Months Ended September 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
   
(Credit) provision for loan losses
   
Balance at
 end of
period
 
Commercial and industrial
 
$
1,560
   
$
(744
)
 
$
1,174
   
$
(93
)
 
$
1,897
   
$
2,615
   
$
(419
)
 
$
663
   
$
(992
)
 
$
1,867
 
Commercial real estate
   
6,777
     
-
     
28
     
(375
)
   
6,430
     
6,572
     
-
     
508
     
331
     
7,411
 
Multifamily
   
4,018
     
-
     
-
     
299
     
4,317
     
2,159
     
-
     
-
     
523
     
2,682
 
Mixed use commercial
   
261
     
-
     
-
     
333
     
594
     
54
     
-
     
-
     
152
     
206
 
Real estate construction
   
383
     
-
     
-
     
103
     
486
     
88
     
-
     
-
     
178
     
266
 
Residential mortgages
   
3,027
     
-
     
31
     
(363
)
   
2,695
     
2,463
     
(32
)
   
12
     
404
     
2,847
 
Home equity
   
709
     
-
     
17
     
(50
)
   
676
     
745
     
-
     
48
     
(84
)
   
709
 
Consumer
   
166
     
(11
)
   
20
     
(50
)
   
125
     
241
     
(19
)
   
26
     
(71
)
   
177
 
Unallocated
   
2,299
     
-
     
-
     
796
     
3,095
     
2,326
     
-
     
-
     
309
     
2,635
 
Total
 
$
19,200
   
$
(755
)
 
$
1,270
   
$
600
   
$
20,315
   
$
17,263
   
$
(470
)
 
$
1,257
   
$
750
   
$
18,800
 

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 September 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 September 30, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

   
Allowance for Loan Losses
   
Loan Balances
 
September 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
 
$
-
   
$
1,897
   
$
1,897
   
$
4,674
   
$
176,442
   
$
181,116
 
Commercial real estate
   
-
     
6,430
     
6,430
     
5,285
     
642,847
     
648,132
 
Multifamily
   
-
     
4,317
     
4,317
     
-
     
392,921
     
392,921
 
Mixed use commercial
   
-
     
594
     
594
     
-
     
64,381
     
64,381
 
Real estate construction
   
-
     
486
     
486
     
-
     
32,896
     
32,896
 
Residential mortgages
   
749
     
1,946
     
2,695
     
5,747
     
180,798
     
186,545
 
Home equity
   
182
     
494
     
676
     
1,852
     
45,138
     
46,990
 
Consumer
   
60
     
65
     
125
     
384
     
6,155
     
6,539
 
Unallocated
   
-
     
3,095
     
3,095
     
-
     
-
     
-
 
Total
 
$
991
   
$
19,324
   
$
20,315
   
$
17,942
   
$
1,541,578
   
$
1,559,520
 
 
   
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 September 30, 2015 and December 31, 2014 (in thousands).

   
September 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
 
$
4,668
   
$
4,668
   
$
-
   
$
4,833
   
$
4,833
   
$
-
 
Commercial real estate
   
5,703
     
5,285
     
-
     
10,632
     
10,214
     
-
 
Residential mortgages
   
2,209
     
2,080
     
-
     
1,645
     
1,516
     
-
 
Home equity
   
1,398
     
1,398
     
-
     
1,377
     
1,377
     
-
 
Consumer
   
210
     
210
     
-
     
137
     
137
     
-
 
Subtotal
   
14,188
     
13,641
     
-
     
18,624
     
18,077
     
-
 
                                                 
With an allowance recorded:
                                               
Commercial and industrial
   
6
     
6
     
-
     
57
     
56
     
16
 
Residential mortgages
   
3,667
     
3,667
     
749
     
3,906
     
3,906
     
809
 
Home equity
   
590
     
454
     
182
     
326
     
190
     
92
 
Consumer
   
175
     
174
     
60
     
185
     
186
     
88
 
Subtotal
   
4,438
     
4,301
     
991
     
4,474
     
4,338
     
1,005
 
Total
 
$
18,626
   
$
17,942
   
$
991
   
$
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 nine months ended September 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 September 30,
   
Nine Months Ended September 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
 
$
2,322
   
$
226
   
$
7