Loans Receivable and Allowance for Loan Losses

Loans receivable at December 31, 2017 and 2016 are summarized as follows (in thousands):



	2017			2016
Mortgage loans:
Residential	$	1,142,347		1,211,672
Commercial	2,171,056			1,978,569
Multi-family	1,403,885			1,402,054
Construction	392,580			264,814
Total mortgage loans	5,109,868			4,857,109
Commercial loans	1,745,138			1,630,444
Consumer loans	473,957			516,755
Total gross loans	7,328,963			7,004,308
Purchased credit-impaired ("PCI") loans	969			1,272
Premiums on purchased loans	4,029			4,968
Unearned discounts	(36		)	(39	)
Net deferred fees	(8,207		)	(7,023	)
Total loans	$	7,325,718		7,003,486

Premiums and discounts on purchased loans are amortized over the lives of the loans as an adjustment to yield. Required reductions due to loan prepayments are charged against interest income. For the years ended December 31, 2017, 2016 and 2015, $1.0 million, $1.3 million and $1.1 million decreased interest income, respectively, as a result of prepayments and normal amortization.

The following table summarizes the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands):



	At December 31, 2017
	30-59 Days		60-89 Days	Non-accrual	90 days or more past due and accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	7,809	4,325	8,105	—	20,239	1,122,108	1,142,347
Commercial	1,486		—	7,090	—	8,576	2,162,480	2,171,056
Multi-family	—		—	—	—	—	1,403,885	1,403,885
Construction	—		—	—	—	—	392,580	392,580
Total mortgage loans	9,295		4,325	15,195	—	28,815	5,081,053	5,109,868
Commercial loans	551		406	17,243	—	18,200	1,726,938	1,745,138
Consumer loans	2,465		487	2,491	—	5,443	468,514	473,957
Total gross loans	$	12,311	5,218	34,929	—	52,458	7,276,505	7,328,963



	At December 31, 2016
	30-59 Days		60-89 Days	Non-accrual	90 days or more past due and accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	5,891	6,563	12,021	—	24,475	1,187,197	1,211,672
Commercial	—		80	7,493	—	7,573	1,970,996	1,978,569
Multi-family	—		—	553	—	553	1,401,501	1,402,054
Construction	—		—	2,517	—	2,517	262,297	264,814
Total mortgage loans	5,891		6,643	22,584	—	35,118	4,821,991	4,857,109
Commercial loans	1,656		357	16,787	—	18,800	1,611,644	1,630,444
Consumer loans	2,561		1,199	3,030	—	6,790	509,965	516,755
Total gross loans	$	10,108	8,199	42,401	—	60,708	6,943,600	7,004,308

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amount of these nonaccrual loans was $34.9 million and $42.4 million at December 31, 2017 and 2016, respectively. There were no loans ninety days or greater past due and still accruing interest at December 31, 2017 and 2016.

If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1.9 million, $2.2 million and $1.2 million, for the years ended December 31, 2017, 2016 and 2015, respectively. The amount of cash basis interest income that was recognized on impaired loans during the years ended December 31, 2017, 2016 and 2015 was $1.8 million, $1.5 million and $1.9 million respectively.

The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current information, that the Bank will not collect all amounts due under the contractual terms of the loan agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to be a TDR when a loan modification resulting in a concession is made by the Bank in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans including residential mortgages and other consumer loans are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as TDRs. The Company separately calculates the reserve for loan loss on impaired loans. The Company may recognize impairment of a loan based upon: (1) the present value of expected cash flows discounted at the effective interest rate; or (2) if a loan is collateral dependent, the fair value of collateral; or (3) the market price of the loan. Additionally, if impaired loans have risk characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.

The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral dependent impaired loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impaired loan and updated annually, or more frequently if required.

A specific allocation of the allowance for loan losses is established for each impaired loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. Charge-offs are generally taken for the amount of the specific allocation when operations associated with the respective property cease and it is determined that collection of amounts due will be derived primarily from the disposition of the collateral. At each fiscal quarter end, if a loan is designated as a collateral dependent impaired loan and the third party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value. The Company believes there have been no significant time lapses as a result of this process.

At December 31, 2017, there were 149 impaired loans totaling $52.0 million, of which 141 loans totaling $41.7 million were TDRs. Included in this total were 125 TDRs related to 121 borrowers totaling $31.7 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2017. At December 31, 2016, there were 141 impaired loans totaling $52.0 million, of which 136 loans totaling $41.6 million were TDRs. Included in this total were 114 TDRs related to 110 borrowers totaling $29.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2016.

Loans receivable summarized by portfolio segment and impairment method, excluding PCI loans are as follows (in thousands):



	At December 31, 2017
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	28,459	21,223	2,359	52,041
Collectively evaluated for impairment	5,081,409		1,723,915	471,598	7,276,922
Total gross loans	$	5,109,868	1,745,138	473,957	7,328,963



	At December 31, 2016
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	29,551	20,255	2,213	52,019
Collectively evaluated for impairment	4,827,558		1,610,189	514,542	6,952,289
Total gross loans	$	4,857,109	1,630,444	516,755	7,004,308

The allowance for loan losses is summarized by portfolio segment and impairment classification, excluding PCI loans as follows (in thousands):



	At December 31, 2017
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments	Unallocated	Total
Individually evaluated for impairment	$	1,486	1,134	70	2,690	—	2,690
Collectively evaluated for impairment	26,566		28,680	2,259	57,505	—	57,505
Total	$	28,052	29,814	2,329	60,195	—	60,195



	At December 31, 2016
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments	Unallocated	Total
Individually evaluated for impairment	$	1,986	268	80	2,334	—	2,334
Collectively evaluated for impairment	27,640		28,875	3,034	59,549	—	59,549
Total	$	29,626	29,143	3,114	61,883	—	61,883

Loan modifications to borrowers experiencing financial difficulties that are considered TDRs primarily involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, the Company attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

The following tables present the number of loans modified as TDRs during the years ended December 31, 2017 and 2016 and their balances immediately prior to the modification date and post-modification as of December 31, 2017 and 2016.



	Year Ended December 31, 2017
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential	5	$	2,468	2,260
Total mortgage loans	5	$	2,468	2,260
Commercial loans	1	874		874
Consumer loans	2	262		257
Total restructured loans	8	$	3,604	3,391



	Year Ended December 31, 2016
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		($ in thousands)
Commercial loans	1	$	1,300	1,300
Total restructured loans	1	$	1,300	1,300

All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed. Estimated collateral values of collateral dependent impaired loans modified during the years ended December 31, 2017 and 2016 exceeded the carrying amounts of such loans. During the year ended December 31, 2017, there were $5.1 million of charge-offs recorded on collateral dependent impaired loans. There were no charge-offs recorded on collateral dependent impaired loans for the same period last year. The allowance for loan losses associated with the TDRs presented in the preceding tables totaled $166,000 and $187,000 at December 31, 2017 and 2016, respectively and were included in the allowance for loan losses for loans individually evaluated for impairment.

The TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 4.18% and 5.25%, compared to a yield of 4.19% and 4.25% prior to modification for the years ended December 31, 2017 and 2016, respectively.

There were no loans modified as TDRs within the previous 12 months from both December 31, 2017 and 2016, which had a payment default (90 days or more past due) during the years ended December 31, 2017 and 2016.

TDRs that subsequently default are considered collateral dependent impaired loans and are evaluated for impairment based on the estimated fair value of the underlying collateral less expected selling costs.

PCI loans are loans acquired at a discount primarily due to deteriorated credit quality. These loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses. At December 31, 2017, PCI loans totaled $1.0 million, compared to $1.3 million at December 31, 2016. The $303,000 decrease from December 31, 2016 was largely due to the full repayment and greater than projected cash flows on certain PCI loans.

The following table summarizes the changes in the accretable yield for PCI loans for the years ended December 31, 2017 and 2016 (in thousands):



	Year ended December 31,
	2017			2016
Beginning balance	$	200		676
Acquisition	—			—
Accretion	(320		)	(1,417	)
Reclassification from non-accretable difference	221			941
Ending balance	$	101		200

The activity in the allowance for loan losses for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):



	Years Ended December 31,
	2017			2016		2015
Balance at beginning of period	$	61,883		61,424		61,734
Provision charged to operations	5,600			5,400		4,350
Recoveries of loans previously charged off	1,653			2,009		4,168
Loans charged off	(8,941		)	(6,950	)	(8,828	)
Balance at end of period	$	60,195		61,883		61,424

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2017 and 2016 are as follows (in thousands):



	For the Year Ended December 31, 2017
	Mortgage loans			Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated	Total
Balance at beginning of period	$	29,626		29,143		3,114		61,883		—	61,883
Provision charged to operations	(1,139		)	7,058		(319	)	5,600		—	5,600
Recoveries of loans previously charged off	66			800		787		1,653		—	1,653
Loans charged off	(501		)	(7,187	)	(1,253	)	(8,941	)	—	(8,941	)
Balance at end of period	$	28,052		29,814		2,329		60,195		—	60,195



	For the Year Ended December 31, 2016
	Mortgage loans			Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated	Total
Balance at beginning of period	$	32,094		25,829		3,501		61,424		—	61,424
Provision charged to operations	(2,028		)	7,606		(178	)	5,400		—	5,400
Recoveries of loans previously charged off	628			570		811		2,009		—	2,009
Loans charged off	(1,068		)	(4,862	)	(1,020	)	(6,950	)	—	(6,950	)
Balance at end of period	$	29,626		29,143		3,114		61,883		—	61,883

Impaired loans receivable by class, excluding PCI loans are summarized as follows (in thousands):



	At December 31, 2017						At December 31, 2016
	Unpaid Principal Balance		Recorded Investment	Related Allowance	Average Recorded Investment	Interest Income Recognized	Unpaid Principal Balance		Recorded Investment	Related Allowance	Average Recorded Investment	Interest Income Recognized
Loans with no related allowance
Mortgage loans:
Residential	$	13,239	10,477	—	10,552	479	$	10,691	7,881	—	8,027	484
Commercial	5,037		4,908	—	5,022	12	1,556		1,556	—	1,586	40
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	2,553		2,517	—	2,514	—
Total	18,276		15,385	—	15,574	491	14,800		11,954	—	12,127	524
Commercial loans	19,196		14,984	—	15,428	395	21,830		18,874	—	13,818	259
Consumer loans	1,582		1,041	—	1,150	69	1,493		981	—	1,026	59
Total loans	$	39,054	31,410	—	32,152	955	$	38,123	31,809	—	26,971	842
Loans with an allow-ance recorded
Mortgage loans:
Residential	$	13,052	12,010	1,351	12,150	475	$	14,169	13,520	1,716	13,705	519
Commercial	1,064		1,064	135	1,076	54	4,138		4,077	270	4,111	55
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	—		—	—	—	—
Total	14,116		13,074	1,486	13,226	529	18,307		17,597	1,986	17,816	574
Commercial loans	7,097		6,239	1,134	7,318	208	1,381		1,381	268	5,956	4
Consumer loans	1,329		1,318	70	1,349	64	1,242		1,232	80	1,259	66
Total loans	$	22,542	20,631	2,690	21,893	801	$	20,930	20,210	2,334	25,031	644
Total
Mortgage loans:
Residential	$	26,291	22,487	1,351	22,702	954	$	24,860	21,401	1,716	21,732	1,003
Commercial	6,101		5,972	135	6,098	66	5,694		5,633	270	5,697	95
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	2,553		2,517	—	2,514	—
Total	32,392		28,459	1,486	28,800	1,020	33,107		29,551	1,986	29,943	1,098
Commercial loans	26,293		21,223	1,134	22,746	603	23,211		20,255	268	19,774	263
Consumer loans	2,911		2,359	70	2,499	133	2,735		2,213	80	2,285	125
Total loans	$	61,596	52,041	2,690	54,045	1,756	$	59,053	52,019	2,334	52,002	1,486

At December 31, 2017, impaired loans consisted of 149 residential, commercial and commercial mortgage loans totaling $52.0 million, of which 24 loans totaling $20.3 million were included in nonaccrual loans. At December 31, 2016, impaired loans consisted of 141 residential, commercial and commercial mortgage loans totaling $52.0 million, of which 27 loans totaling $22.1 million were included in nonaccrual loans. Specific allocations of the allowance for loan losses attributable to impaired loans totaled $2.7 million and $2.3 million at December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, impaired loans for which there was no related allowance for loan losses totaled $31.4 million and $31.8 million, respectively. The average balances of impaired loans during the years ended December 31, 2017 and 2016 were $54.0 million and $52.0 million, respectively.

In the normal course of conducting its business, the Bank extends credit to meet the financing needs of its customers through commitments. Commitments and contingent liabilities, such as commitments to extend credit (including loan commitments of $1.71 billion and $1.55 billion, at December 31, 2017 and 2016, respectively, and undisbursed home equity and personal credit lines of $270.9 million and $279.8 million, at December 31, 2017 and 2016, respectively) exist, which are not reflected in the accompanying consolidated financial statements. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance sheet loans. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower.

The Bank grants residential real estate loans on single- and multi-family dwellings to borrowers primarily in New Jersey. Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral, and priority of the Bank’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Bank’s control; the Bank is therefore subject to risk of loss. The Bank believes that its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or guarantees are required for virtually all loans.

The Company utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also confirmed through periodic loan review examinations, which are currently performed by an independent third-party. Reports by the independent third-party are presented directly to the Audit Committee of the Board of Directors.

Loans receivable by credit quality risk rating indicator, excluding PCI loans are as follows (in thousands):



	At December 31, 2017
	Residential		Commercial mortgages	Multi- family	Construction	Total mortgages	Commercial loans	Consumer loans	Total loans
Special mention	$	4,325	19,172	15	—	23,512	20,738	486	44,736
Substandard	8,105		25,069	—	—	33,174	29,734	2,491	65,399
Doubtful	—		—	—	—	—	428	—	428
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	12,430		44,241	15	—	56,686	50,900	2,977	110,563
Acceptable/watch	1,129,917		2,126,815	1,403,870	392,580	5,053,182	1,694,238	470,980	7,218,400
Total outstanding loans	$	1,142,347	2,171,056	1,403,885	392,580	5,109,868	1,745,138	473,957	7,328,963



	At December 31, 2016
	Residential		Commercial mortgages	Multi- family	Construction	Total mortgages	Commercial loans	Consumer loans	Total loans
Special mention	$	6,563	25,329	563	—	32,455	14,840	1,242	48,537
Substandard	12,021		23,011	553	2,517	38,102	47,255	2,940	88,297
Doubtful	—			—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	18,584		48,340	1,116	2,517	70,557	62,095	4,182	136,834
Acceptable/watch	1,193,088		1,930,229	1,400,938	262,297	4,786,552	1,568,349	512,573	6,867,474
Total outstanding loans	$	1,211,672	1,978,569	1,402,054	264,814	4,857,109	1,630,444	516,755	7,004,308