Loans Receivable and Allowance for Loan Losses

Loans receivable at December 31, 2015 and 2014 are summarized as follows (in thousands):



	2015			2014
Mortgage loans:
Residential	$	1,254,036		1,251,445
Commercial	1,714,923			1,694,359
Multi-family	1,233,792			1,041,582
Construction	331,649			221,102
Total mortgage loans	4,534,400			4,208,488
Commercial loans	1,433,447			1,262,422
Consumer loans	566,175			611,467
Total gross loans	6,534,022			6,082,377
Purchased credit-impaired ("PCI") loans	3,435			4,510
Premiums on purchased loans	5,740			5,307
Unearned discounts	(41		)	(53	)
Net deferred fees	(5,482		)	(6,636	)
	$	6,537,674		6,085,505

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, 2015, 2014 and 2013, $$1,100,000, $694,000 and $1,286,000, respectively, decreased interest income 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, 2015
	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	$	8,983	5,434	12,031	—	26,448	1,227,588	1,254,036
Commercial	1,732		543	1,263	—	3,538	1,711,385	1,714,923
Multi-family	763		506	742	—	2,011	1,231,781	1,233,792
Construction	—		—	2,351	—	2,351	329,298	331,649
Total mortgage loans	11,478		6,483	16,387	—	34,348	4,500,052	4,534,400
Commercial loans	632		801	23,875	165	25,473	1,407,974	1,433,447
Consumer loans	3,603		1,194	4,109	—	8,906	557,269	566,175
Total gross loans	$	15,713	8,478	44,371	165	68,727	6,465,295	6,534,022



	At December 31, 2014
	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	$	10,121	4,331	17,222	—	31,674	1,219,771	1,251,445
Commercial	146		30	20,026	—	20,202	1,674,157	1,694,359
Multi-family	—		—	321	—	321	1,041,261	1,041,582
Construction	—		—	—	—	—	221,102	221,102
Total mortgage loans	10,267		4,361	37,569	—	52,197	4,156,291	4,208,488
Commercial loans	1,000		371	12,342	—	13,713	1,248,709	1,262,422
Consumer loans	2,398		2,509	3,944	—	8,851	602,616	611,467
Total gross loans	$	13,665	7,241	53,855	—	74,761	6,007,616	6,082,377

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 $44.4 million and $53.9 million at December 31, 2015 and 2014, respectively. At December 31, 2015, there was one commercial loan for $165,000 which was ninety days or greater past due and still accruing interest. This loan was past maturity and well secured at December 31, 2015, which subsequent to the end of the year was refinanced by the Company. There were no loans ninety days or greater past due and still accruing interest in 2014.

If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $1,200,000, $1,877,000 and $1,913,000, for the years ended December 31, 2015, 2014 and 2013, respectively. The amount of cash basis interest income that was recognized on impaired loans during the years ended December 31, 2015, 2014 and 2013 was not material for the periods presented.

The Company defines an impaired loan as a non-homogenous 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, 2015, there were 148 impaired loans totaling $50.9 million, of which 143 loans totaling $43.9 million were TDRs. Included in this total were 122 TDRs related to 120 borrowers totaling $26.0 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2015. At December 31, 2014, there were 147 impaired loans totaling $85.4 million, of which 143 loans totaling $81.7 million were TDRs. Included in this total were 123 TDRs related to 120 borrowers totaling $54.8 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2014.

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



	At December 31, 2015
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	26,743	21,756	2,368	50,867
Collectively evaluated for impairment	4,507,657		1,411,691	563,807	6,483,155
Total gross loans	$	4,534,400	1,433,447	566,175	6,534,022



	At December 31, 2014
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	66,548	16,463	2,384	85,395
Collectively evaluated for impairment	4,141,940		1,245,959	609,083	5,996,982
Total gross loans	$	4,208,488	1,262,422	611,467	6,082,377

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



	At December 31, 2015
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments	Unallocated ⁽¹⁾	Total
Individually evaluated for impairment	$	2,086	91	94	2,271	—	2,271
Collectively evaluated for impairment	30,008		25,738	3,407	59,153	—	59,153
Total	$	32,094	25,829	3,501	61,424	—	61,424

⁽¹⁾ For the year ended December 31, 2015, the Company enhanced its allowance for loan losses process and allocated the previously unallocated allowance using both qualitative and quantitative factors.



	At December 31, 2014
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments	Unallocated	Total
Individually evaluated for impairment	$	4,696	2,318	113	7,127	—	7,127
Collectively evaluated for impairment	27,281		22,063	4,768	54,112	495	54,607
Total	$	31,977	24,381	4,881	61,239	495	61,734

Loan modifications to customers 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, 2015 and 2014 and their balances immediately prior to the modification date and post-modification as of December 31, 2015 and 2014.



	Year Ended December 31, 2015
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential	6	$	2,192	2,179
Construction	1	2,600		2,351
Total mortgage loans	7	4,792		4,530
Commercial loans	4	6,659		6,822
Consumer loans	2	123		112
Total restructured loans	13	$	11,574	11,464



	Year Ended December 31, 2014
Troubled Debt Restructurings	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		($ in thousands)
Mortgage loans:
Residential	14	$	3,034	2,725
Commercial	1	865		861
Total mortgage loans	15	3,899		3,586
Consumer loans	2	394		156
Total restructured loans	17	$	4,293	3,742

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, 2015 and 2014 exceeded the carrying amounts of such loans. As a result, there were $465,000 of charge-offs recorded on collateral dependent impaired loans for the year ended December 31, 2015. There were no charge-offs recorded on collateral dependent impaired loans for the year ended December 31, 2014. The allowance for loan losses associated with the TDRs presented in the preceding tables totaled $99,000 and $419,000 at December 31, 2015 and 2014, 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 5.25% and 4.58%, compared to a yield of 5.71% and 5.69% prior to modification for the years ended December 31, 2015 and 2014, respectively.

The following table presents loans modified as TDRs within the previous 12 months from December 31, 2015 and 2014, and for which there was a payment default (90 days or more past due) during the years ended December 31, 2015 and 2014:



	Year Ended December 31, 2015			Year Ended December 31, 2014
Troubled Debt Restructurings Subsequently Defaulted	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
		($ in thousands)			($ in thousands)
Mortgage loans:
Construction	1	$	2,351	—	$	—
Total mortgage loans	1	2,351		—	—
Commercial loans	4	6,822		—	—
Total restructured loans	5	$	9,173	—	$	—

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. As part of the Team Capital acquisition, $5.2 million of the loans purchased at May 30, 2014 were determined to be PCI loans. PCI loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired from Team Capital at May 30, 2014 (in thousands):



	May 30, 2014
Contractually required principal and interest	$	12,505
Contractual cash flows not expected to be collected (non-accretable discount)	(6,475		)
Expected cash flows to be collected at acquisition	6,030
Interest component of expected cash flows (accretable yield)	(810		)
Fair value of acquired loans	$	5,220

PCI loans totaled $3.4 million at December 31, 2015, compared to $4.5 million at December 31, 2014 and $5.2 million at acquisition from Team Capital on May 30, 2014. The $1.1 million and $1.8 million decrease from December 31, 2014 and the May 31, 2014 acquisition date was largely due to the full repayment and greater than projected cash flows on certain PCI loans. This resulted in a $230,000 and a $348,000 increase in interest income for the years ended December 31, 2015 and 2014, respectively, due to the acceleration of accretable and non-accretable discount on these loans.

The following table summarizes the changes in the accretable yield for PCI loans for the years ended December 31, 2015 and 2014 (in thousands):



	Year ended December 31,
	2015			2014
Beginning balance	$	695		$	—
Acquisition	—			810
Accretion	(810		)	(592		)
Reclassification from non-accretable difference	791			477
Ending balance	$	676		$	695

The activity in the allowance for loan losses for the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):



	Years Ended December 31,
	2015			2014		2013
Balance at beginning of period	$	61,734		64,664		70,348
Provision charged to operations	4,350			4,650		5,500
Recoveries of loans previously charged off	4,168			3,292		3,222
Loans charged off	(8,828		)	(10,872	)	(14,406	)
Balance at end of period	$	61,424		61,734		64,664

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2015 and 2014 are as follows (in thousands):



	For the Year Ended December 31, 2015
	Mortgage loans			Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated		Total
Balance at beginning of period	$	31,977		24,381		4,881		61,239		495		61,734
Provision charged to operations	2,357			1,898		590		4,845		(495	)	4,350
Recoveries of loans previously charged off	247			2,413		1,508		4,168		—		4,168
Loans charged off	(2,487		)	(2,863	)	(3,478	)	(8,828	)	—		(8,828	)
Balance at end of period	$	32,094		25,829		3,501		61,424		—		61,424



	For the Year ended December 31, 2014
	Mortgage loans			Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated		Total
Balance at beginning of period	$	34,144		24,107		4,929		63,180		1,484		64,664
Provision charged to operations	1,455			2,947		1,237		5,639		(989	)	4,650
Recoveries of loans previously charged off	286			1,776		1,230		3,292		—		3,292
Loans charged off	(3,908		)	(4,449	)	(2,515	)	(10,872	)	—		(10,872	)
Balance at end of period	$	31,977		24,381		4,881		61,239		495		61,734

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



	At December 31, 2015						At December 31, 2014
	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	$	12,144	8,799	—	9,079	451	$	14,942	10,629	—	11,138	357
Commercial	—		—	—	—	—	4,971		4,708	—	4,713	—
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	2,358		2,351	—	1,170	16	—		—	—	—	—
Total	14,502		11,150	—	10,249	467	19,913		15,337	—	15,851	357
Commercial loans	23,754		21,144	—	21,875	747	2,718		2,179	—	1,823	4
Consumer loans	1,560		1,082	—	1,121	48	1,250		830	—	870	28
Total loans	$	39,816	33,376	—	33,245	1,262	$	23,881	18,346	—	18,544	389
Loans with an allow-ance recorded
Mortgage loans:
Residential	$	14,997	14,353	1,901	14,500	505	$	15,523	14,906	2,367	15,106	555
Commercial	1,240		1,240	185	1,361	63	37,555		36,306	2,329	36,674	914
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	—		—	—	—	—	—		—	—	—	—
Total	16,237		15,593	2,086	15,861	568	53,078		51,212	4,696	51,780	1,469
Commercial loans	612		612	91	807	52	15,990		14,283	2,318	15,967	390
Consumer loans	1,297		1,286	94	1,312	67	1,565		1,554	113	1,578	80
Total loans	$	18,146	17,491	2,271	17,980	687	$	70,633	67,049	7,127	69,325	1,939
Total
Mortgage loans:
Residential	$	27,141	23,152	1,901	23,579	956	$	30,465	25,535	2,367	26,244	912
Commercial	1,240		1,240	185	1,361	63	42,526		41,014	2,329	41,387	914
Multi-family	—		—	—	—	—	—		—	—	—	—
Construction	2,358		2,351	—	1,170	16	—		—	—	—	—
Total	30,739		26,743	2,086	26,110	1,035	72,991		66,549	4,696	67,631	1,826
Commercial loans	24,366		21,756	91	22,682	799	18,708		16,462	2,318	17,790	394
Consumer loans	2,857		2,368	94	2,433	115	2,815		2,384	113	2,448	108
Total loans	$	57,962	50,867	2,271	51,225	1,949	$	94,514	85,395	7,127	87,869	2,328

At December 31, 2015, impaired loans consisted of 148 residential, commercial and commercial mortgage loans totaling $50,867,000, of which 26 loans totaling $24,894,000 were included in nonaccrual loans. At December 31, 2014, impaired loans consisted of 147 residential, commercial and commercial mortgage loans totaling $85,395,000, of which 24 loans totaling $30,619,000 were included in nonaccrual loans. Specific allocations of the allowance for loan losses attributable to impaired loans totaled $2,271,000 and $7,127,000 at December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, impaired loans for which there was no related allowance for loan losses totaled $33,376,000 and $18,346,000, respectively. The average balances of impaired loans during the years ended December 31, 2015 and 2014 were $51,225,000 and $87,869,000, 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 $866,403,000 and $908,581,000, at December 31, 2015 and 2014, respectively, and undisbursed home equity and personal credit lines of $287,942,000 and $300,029,000, at December 31, 2015 and 2014, 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 his or her portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Administration 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, 2015
	Residential		Commercial mortgages	Multi- family	Construction	Total mortgages	Commercial loans	Consumer loans	Total loans
Special mention	$	5,434	29,363	1,080	—	35,877	76,464	1,194	113,535
Substandard	12,031		19,451	1,248	2,351	35,081	38,654	4,054	77,789
Doubtful	—		—	—	—	—	8	—	8
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	17,465		48,814	2,328	2,351	70,958	115,126	5,248	191,332
Acceptable/watch	1,236,571		1,666,109	1,231,464	329,298	4,463,442	1,318,321	560,927	6,342,690
Total outstanding loans	$	1,254,036	1,714,923	1,233,792	331,649	4,534,400	1,433,447	566,175	6,534,022



	At December 31, 2014
	Residential		Commercial mortgages	Multi- family	Construction	Total mortgages	Commercial loans	Consumer loans	Total loans
Special mention	$	4,331	18,414	851	—	23,596	45,599	2,509	71,704
Substandard	17,222		53,454	322	2,600	73,598	32,828	3,938	110,364
Doubtful	—		1,063	—	—	1,063	29	—	1,092
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	21,553		72,931	1,173	2,600	98,257	78,456	6,447	183,160
Acceptable/watch	1,229,892		1,621,428	1,040,409	218,502	4,110,231	1,183,966	605,020	5,899,217
Total outstanding loans	$	1,251,445	1,694,359	1,041,582	221,102	4,208,488	1,262,422	611,467	6,082,377