Loans Receivable and Allowance for Loan Losses

Loans receivable at March 31, 2016 and December 31, 2015 are summarized as follows (in thousands):



	March 31, 2016			December 31, 2015
Mortgage loans:
Residential	$	1,263,109		1,254,036
Commercial	1,709,054			1,714,923
Multi-family	1,318,143			1,233,792
Construction	309,656			331,649
Total mortgage loans	4,599,962			4,534,400
Commercial loans	1,479,145			1,433,447
Consumer loans	556,056			566,175
Total gross loans	6,635,163			6,534,022
Purchased credit-impaired ("PCI") loans	2,683			3,435
Premiums on purchased loans	6,011			5,740
Unearned discounts	(40		)	(41	)
Net deferred fees	(5,690		)	(5,482	)
Total loans	$	6,638,127		6,537,674

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



	March 31, 2016
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	9,002	4,491	14,063	—	27,556	1,235,553	1,263,109
Commercial	1,115		3,351	1,306	—	5,772	1,703,282	1,709,054
Multi-family	47		751	1,240	—	2,038	1,316,105	1,318,143
Construction	—		—	2,517	—	2,517	307,139	309,656
Total mortgage loans	10,164		8,593	19,126	—	37,883	4,562,079	4,599,962
Commercial loans	1,108		—	28,527	—	29,635	1,449,510	1,479,145
Consumer loans	2,762		441	2,996	—	6,199	549,857	556,056
Total gross loans	$	14,034	9,034	50,649	—	73,717	6,561,446	6,635,163



	December 31, 2015
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days 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

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 amounts of these non-accrual loans were $50.6 million and $44.4 million at March 31, 2016 and December 31, 2015, respectively. Included in non-accrual loans were $13.1 million and $18.3 million of loans which were less than 90 days past due at March 31, 2016 and December 31, 2015, respectively. There were no loans 90 days or greater past due and still accruing interest at March 31, 2016. 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 due for maturity and well secured at December 31, 2015, and subsequent to the end of the year was renewed by the Company.

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, all amounts due under the contractual terms of the loan agreement will not be collected. 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 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 losses 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; (2) if a loan is collateral dependent, the fair value of collateral; or (3) the fair value 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 analyses 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 is updated annually or more frequently, if required.

A specific allocation of the allowance for loan losses is established for each collateral dependent 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 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 March 31, 2016, there were 151 impaired loans totaling $54.2 million. Included in this total were 119 TDRs related to 117 borrowers totaling $25.1 million that were performing in accordance with their restructured terms and which continued to accrue interest at March 31, 2016. At December 31, 2015, there were 148 impaired loans totaling $50.9 million. Included in this total were 122 TDRs 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.

The following table summarizes loans receivable by portfolio segment and impairment method, excluding PCI loans (in thousands):



	March 31, 2016
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	26,688	25,186	2,319	54,193
Collectively evaluated for impairment	4,573,274		1,453,959	553,737	6,580,970
Total gross loans	$	4,599,962	1,479,145	556,056	6,635,163



	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

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



	March 31, 2016
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments	Total
Individually evaluated for impairment	$	2,167	2,796	90	5,053	5,053
Collectively evaluated for impairment	28,682		25,459	2,997	57,138	57,138
Total gross loans	$	30,849	28,255	3,087	62,191	62,191



	December 31, 2015
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments	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 gross loans	$	32,094	25,829	3,501	61,424	61,424

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 three months ended March 31, 2016 and 2015 along with their balances immediately prior to the modification date and post-modification as of March 31, 2016 and 2015. There were no loans modified as TDRs during the three months ended March 31, 2106.



	For the three months ended
	March 31, 2016					March 31, 2015
Troubled Debt Restructuring	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Residential	—	$	—	$	—	2	$	322	$	321
Construction	—	—		—		1	2,600		347
Total mortgage loans	—	—		—		3	2,922		668
Commercial loans	—	—		—		4	6,659		6,898
Consumer loans	—	—		—		1	44		42
Total restructured loans	—	$	—	$	—	8	$	9,625	$	7,608

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 three months ended March 31, 2015 exceeded the carrying amounts of such loans. As a result, there were no charge-offs recorded on collateral dependent impaired loans presented in the preceding table for the three months ended March 31, 2015. The allowance for loan losses associated with the TDRs presented in the preceding table for the three months ended March 31, 2015 totaled $31,000 and was included in the allowance for loan losses for loans individually evaluated for impairment.

For the three months ended March 31, 2015, the TDRs had a weighted average modified interest rate of approximately 5.90%, compared to a rate of 5.83% prior to modification.

The following table presents loans modified as TDRs within the 12 month periods ending March 31, 2016 and 2015, and for which there was a payment default (90 days or more past due) within the respective one year period:



	March 31, 2016			March 31, 2015
Troubled Debt Restructurings Subsequently Defaulted	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
	($ in thousands)
Mortgage loans:
Construction	1	$	2,517	—	$	—
Total mortgage loans	1	2,517		—	—
Commercial loans	4	6,809		—	$	—
Total restructured loans	5	$	9,326	—	$	—

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 May 30, 2014 acquisition of Team Capital, $5.2 million of the loans acquired were determined to be PCI loans. At the date of acquisition, PCI loans were 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 declined $750,000 to $2.7 million at March 31, 2016, from $3.4 million at December 31, 2015. The decrease from December 31, 2015, was largely due to the full repayment and greater than projected cash flows on certain PCI loans. This resulted in a $280,000 and a $76,000 increase in interest income for the three months ended March 31, 2016 and 2015, respectively, due to the acceleration of accretable and non-accretable discounts on these loans.

The following table summarizes the changes in the accretable yield for PCI loans during the three months ended March 31, 2016 and 2015 (in thousands):



	Three months ended March 31,
	2016			2015
Beginning balance	$	676		$	695
Acquisition	—			—
Accretion	(421		)	(198		)
Reclassification from non-accretable discount	248			184
Ending balance	$	503		$	681

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015 was as follows (in thousands):



Three months ended March 31,	Mortgage loans			Commercial loans		Consumer loans		Total Portfolio Segments		Unallocated		Total
2016
Balance at beginning of period	$	32,094		25,829		3,501		61,424		—		61,424
Provision charged to operations	(1,193		)	2,958		(265	)	1,500		—		1,500
Recoveries of loans previously charged-off	172			91		316		579		—		579
Loans charged-off	(224		)	(623	)	(465	)	(1,312	)	—		(1,312	)
Balance at end of period	$	30,849		28,255		3,087		62,191		—		62,191

2015
Balance at beginning of period	$	31,977		24,381		4,881		61,239		495		61,734
Provision charged to operations	1,038			(477	)	284		845		(245	)	600
Recoveries of loans previously charged-off	65			215		211		491		—		491
Loans charged-off	(194		)	(422	)	(1,099	)	(1,715	)	—		(1,715	)
Balance at end of period	$	32,886		23,697		4,277		60,860		250		61,110

The following table presents loans individually evaluated for impairment by class and loan category, excluding PCI loans (in thousands):



	March 31, 2016						December 31, 2015
	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	$	11,046	8,121	—	8,148	106	12,144	8,799	—	9,079	451
Commercial	—		—	—	—	—	—	—	—	—	—
Multi-family	—		—	—	—	—	—	—	—	—	—
Construction	2,553		2,517	—	2,505	—	2,358	2,351	—	1,170	16
Total	13,599		10,638	—	10,653	106	14,502	11,150	—	10,249	467
Commercial loans	15,198		14,570	—	14,672	—	23,754	21,144	—	21,875	747
Consumer loans	1,543		1,046	—	1,066	24	1,560	1,082	—	1,121	48
Total impaired loans	$	30,340	26,254	—	26,391	130	39,816	33,376	—	33,245	1,262

Loans with an allowance recorded
Mortgage loans:
Residential	$	15,889	14,826	1,989	14,865	147	14,997	14,353	1,901	14,500	505
Commercial	1,224		1,224	178	1,232	15	1,240	1,240	185	1,361	63
Multi-family	—		—	—	—	—	—	—	—	—	—
Construction	—		—	—	—	—	—	—	—	—	—
Total	17,113		16,050	2,167	16,097	162	16,237	15,593	2,086	15,861	568
Commercial loans	12,709		10,616	2,796	10,770	12	612	612	91	807	52
Consumer loans	1,284		1,273	90	1,279	16	1,297	1,286	94	1,312	67
Total impaired loans	$	31,106	27,939	5,053	28,146	190	18,146	17,491	2,271	17,980	687

Total impaired loans
Mortgage loans:
Residential	$	26,935	22,947	1,989	23,013	253	27,141	23,152	1,901	23,579	956
Commercial	1,224		1,224	178	1,232	15	1,240	1,240	185	1,361	63
Multi-family	—		—	—	—	—	—	—	—	—	—
Construction	2,553		2,517	—	2,505	—	2,358	2,351	—	1,170	16
Total	30,712		26,688	2,167	26,750	268	30,739	26,743	2,086	26,110	1,035
Commercial loans	27,907		25,186	2,796	25,442	12	24,366	21,756	91	22,682	799
Consumer loans	2,827		2,319	90	2,345	40	2,857	2,368	94	2,433	115
Total impaired loans	$	61,446	54,193	5,053	54,537	320	57,962	50,867	2,271	51,225	1,949

Specific allocations of the allowance for loan losses attributable to impaired loans totaled $5.1 million and $2.3 million at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016 and December 31, 2015, impaired loans for which there was no related allowance for loan losses totaled $26.3 million and $33.4 million , respectively. The average balance of impaired loans during the three months ended March 31, 2016 was $54.5 million.

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 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 March 31, 2016
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	Total loans
Special mention	$	4,491	27,574	—	—	32,065	56,931	441	89,437
Substandard	14,063		12,652	1,991	2,517	31,223	36,005	2,942	70,170
Doubtful	—		—	—	—	—	4,002	—	4,002
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	18,554		40,226	1,991	2,517	63,288	96,938	3,383	163,609
Pass/Watch	1,244,555		1,668,828	1,316,152	307,139	4,536,674	1,382,207	552,673	6,471,554
Total	$	1,263,109	1,709,054	1,318,143	309,656	4,599,962	1,479,145	556,056	6,635,163

	At December 31, 2015
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	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
Pass/Watch	1,236,571		1,666,109	1,231,464	329,298	4,463,442	1,318,321	560,927	6,342,690
Total	$	1,254,036	1,714,923	1,233,792	331,649	4,534,400	1,433,447	566,175	6,534,022