Loans Receivable and Allowance for Loan Losses

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



	March 31, 2017			December 31, 2016
Mortgage loans:
Residential	$	1,198,009		1,211,672
Commercial	1,966,075			1,978,569
Multi-family	1,399,013			1,402,054
Construction	273,366			264,814
Total mortgage loans	4,836,463			4,857,109
Commercial loans	1,660,290			1,630,444
Consumer loans	502,363			516,755
Total gross loans	6,999,116			7,004,308
Purchased credit-impaired ("PCI") loans	1,280			1,272
Premiums on purchased loans	4,771			4,968
Unearned discounts	(38		)	(39	)
Net deferred fees	(7,060		)	(7,023	)
Total loans	$	6,998,069		7,003,486

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



	March 31, 2017
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	7,175	4,310	10,025	—	21,510	1,176,499	1,198,009
Commercial	2,272		945	7,408	—	10,625	1,955,450	1,966,075
Multi-family	—		—	79	—	79	1,398,934	1,399,013
Construction	—		—	2,517	—	2,517	270,849	273,366
Total mortgage loans	9,447		5,255	20,029	—	34,731	4,801,732	4,836,463
Commercial loans	709		810	17,572	—	19,091	1,641,199	1,660,290
Consumer loans	3,052		993	2,892	—	6,937	495,426	502,363
Total gross loans	$	13,208	7,058	40,493	—	60,759	6,938,357	6,999,116



	December 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	$	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 amounts of these non-accrual loans were $40.5 million and $42.4 million at March 31, 2017 and December 31, 2016, respectively. Included in non-accrual loans were $5.2 million and $7.3 million of loans which were less than 90 days past due at March 31, 2017 and December 31, 2016, respectively. There were no loans 90 days or greater past due and still accruing interest at March 31, 2017 or December 31, 2016.

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 in the recognition of changes in collateral values as a result of this process.

At March 31, 2017, there were 150 impaired loans totaling $53.5 million. Included in this total were 120 TDRs related to 116 borrowers totaling $30.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at March 31, 2017. At December 31, 2016, there were 141 impaired loans totaling $52.0 million. Included in this total were 114 TDRs 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.

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



	March 31, 2017
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	30,250	20,823	2,408	53,481
Collectively evaluated for impairment	4,806,213		1,639,467	499,955	6,945,635
Total gross loans	$	4,836,463	1,660,290	502,363	6,999,116



	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 as follows (in thousands):



	March 31, 2017
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	1,880	1,050	102	3,032
Collectively evaluated for impairment	27,438		28,736	2,949	59,123
Total gross loans	$	29,318	29,786	3,051	62,155



	December 31, 2016
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	1,986	268	80	2,334
Collectively evaluated for impairment	27,640		28,875	3,034	59,549
Total gross loans	$	29,626	29,143	3,114	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 three months ended March 31, 2017 and 2016, along with their balances immediately prior to the modification date and post-modification as of March 31, 2017 and 2016. There were no loans modified as TDRs during the three months ended March 31, 2016.



	For the three months ended
	March 31, 2017					March 31, 2016
Troubled Debt Restructurings	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	3	$	1,002	$	988	—	$	—	$	—
Total mortgage loans	3	1,002		988		—	—		—
Commercial loans	1	$	292	$	284	—	$	—	$	—
Consumer loans	2	240		234		—	—		—
Total restructured loans	6	$	1,534	$	1,506	—	$	—	$	—

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, 2017 and 2016 exceeded the carrying amounts of such loans. As a result, there were no charge-offs recorded on collateral dependent impaired loans for the three months ended March 31, 2017 and 2016, which are included in the preceding tables. The allowance for loan losses associated with the TDRs presented in the preceding tables for the three months ended March 31, 2017 totaled $158,000 and was included in the allowance for loan losses for loans individually evaluated for impairment.

For the three months ended March 31, 2017, the TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 3.30% compared to a rate of 3.61% prior to modification, respectively.

The following table presents loans modified as TDRs within the previous 12 months from March 31, 2017 and 2016, and for which there was a payment default (90 days or more past due) at the quarter ended March 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.



	March 31, 2017			March 31, 2016
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	1	284		4	$	6,809
Total restructured loans	1	$	284	5	$	9,326

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 then present value of expected future cash flows, with no related allowance for loan losses. PCI loans totaled $1.3 million at March 31, 2017 and December 31, 2016.

The following table summarizes the changes in the accretable yield for PCI loans during the three months ended March 31, 2017 and 2016 (in thousands):



	Three months ended March 31,
	2017			2016
Beginning balance	$	200		$	676
Accretion	(49		)	(421		)
Reclassification from non-accretable discount	21			248
Ending balance	$	172		$	503

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2017 and 2016 was as follows (in thousands):



Three months ended March 31,	Mortgage loans			Commercial loans		Consumer loans		Total
2017
Balance at beginning of period	$	29,626		29,143		3,114		61,883
Provision charged to operations	(130		)	1,616		14		1,500
Recoveries of loans previously charged-off	53			458		176		687
Loans charged-off	(231		)	(1,431	)	(253	)	(1,915	)
Balance at end of period	$	29,318		29,786		3,051		62,155

2016
Balance at beginning of period	$	32,094		25,829		3,501		61,424
Provision charged to operations	(1,193		)	2,958		(265	)	1,500
Recoveries of loans previously charged-off	172			91		316		579
Loans charged-off	(224		)	(623	)	(465	)	(1,312	)
Balance at end of period	$	30,849		28,255		3,087		62,191

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



	March 31, 2017						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	$	10,700	8,229	—	8,270	113	10,691	7,881	—	8,027	484
Commercial	4,600		4,472	—	4,606	—	1,556	1,556	—	1,586	40
Construction	2,553		2,517	—	2,517	—	2,553	2,517	—	2,514	—
Total	17,853		15,218	—	15,393	113	14,800	11,954	—	12,127	524
Commercial loans	18,191		13,861	—	16,130	76	21,830	18,874	—	13,818	259
Consumer loans	1,474		959	—	971	12	1,493	981	—	1,026	59
Total impaired loans	$	37,518	30,038	—	32,494	201	38,123	31,809	—	26,971	842

Loans with an allowance recorded
Mortgage loans:
Residential	$	15,021	13,950	1,728	14,008	130	14,169	13,520	1,716	13,705	519
Commercial	1,082		1,082	152	1,085	13	4,138	4,077	270	4,111	55
Construction	—		—	—	—	—	—	—	—	—	—
Total	16,103		15,032	1,880	15,093	143	18,307	17,597	1,986	17,816	574
Commercial loans	7,032		6,962	1,050	7,002	28	1,381	1,381	268	5,956	4
Consumer loans	1,460		1,449	102	1,459	19	1,242	1,232	80	1,259	66
Total impaired loans	$	24,595	23,443	3,032	23,554	190	20,930	20,210	2,334	25,031	644

Total impaired loans
Mortgage loans:
Residential	$	25,721	22,179	1,728	22,278	243	24,860	21,401	1,716	21,732	1,003
Commercial	5,682		5,554	152	5,691	13	5,694	5,633	270	5,697	95
Construction	2,553		2,517	—	2,517	—	2,553	2,517	—	2,514	—
Total	33,956		30,250	1,880	30,486	256	33,107	29,551	1,986	29,943	1,098
Commercial loans	25,223		20,823	1,050	23,132	104	23,211	20,255	268	19,774	263
Consumer loans	2,934		2,408	102	2,430	31	2,735	2,213	80	2,285	125
Total impaired loans	$	62,113	53,481	3,032	56,048	391	59,053	52,019	2,334	52,002	1,486

Specific allocations of the allowance for loan losses attributable to impaired loans totaled $3.0 million at March 31, 2017 and $2.3 million at December 31, 2016. At March 31, 2017 and December 31, 2016, impaired loans for which there was no related allowance for loan losses totaled $30.0 million and $31.8 million, respectively. The average balance of impaired loans for the three months ended March 31, 2017 was $56.0 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, 2017
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	Total loans
Special mention	$	4,310	24,492	557	—	29,359	30,538	993	60,890
Substandard	10,025		25,276	604	2,517	38,422	40,612	2,892	81,926
Doubtful	—		—	—	—	—	—	—	—
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	14,335		49,768	1,161	2,517	67,781	71,150	3,885	142,816
Pass/Watch	1,183,674		1,916,307	1,397,852	270,849	4,768,682	1,589,140	498,478	6,856,300
Total	$	1,198,009	1,966,075	1,399,013	273,366	4,836,463	1,660,290	502,363	6,999,116

	At December 31, 2016
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	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
Pass/Watch	1,193,088		1,930,229	1,400,938	262,297	4,786,552	1,568,349	512,573	6,867,474
Total	$	1,211,672	1,978,569	1,402,054	264,814	4,857,109	1,630,444	516,755	7,004,308