Loans Receivable and Allowance for Loan Losses

Loans receivable at March 31, 2018 and December 31, 2017 are summarized as follows (in thousands):



	March 31, 2018			December 31, 2017
Mortgage loans:
Residential	$	1,127,744		1,142,347
Commercial	2,185,107			2,171,056
Multi-family	1,423,834			1,403,885
Construction	370,999			392,580
Total mortgage loans	5,107,684			5,109,868
Commercial loans	1,725,780			1,745,138
Consumer loans	460,741			473,957
Total gross loans	7,294,205			7,328,963
Purchased credit-impaired ("PCI") loans	946			969
Premiums on purchased loans	3,848			4,029
Unearned discounts	(35		)	(36	)
Net deferred fees	(7,826		)	(8,207	)
Total loans	$	7,291,138		7,325,718

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



	March 31, 2018
	30-59 Days		60-89 Days	Non-accrual	Recorded Investment > 90 days accruing	Total Past Due	Current	Total Loans Receivable
Mortgage loans:
Residential	$	5,711	6,694	8,343	—	20,748	1,106,996	1,127,744
Commercial	967		949	4,265	—	6,181	2,178,926	2,185,107
Multi-family	—		—	—	—	—	1,423,834	1,423,834
Construction	—		—	—	—	—	370,999	370,999
Total mortgage loans	6,678		7,643	12,608	—	26,929	5,080,755	5,107,684
Commercial loans	3,787		250	31,359	—	35,396	1,690,384	1,725,780
Consumer loans	2,208		647	1,971	—	4,826	455,915	460,741
Total gross loans	$	12,673	8,540	45,938	—	67,151	7,227,054	7,294,205



	December 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	$	7,809	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

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 $45.9 million and $34.9 million at March 31, 2018 and December 31, 2017, respectively. Included in non-accrual loans were $24.8 million and $11.5 million of loans which were less than 90 days past due at March 31, 2018 and December 31, 2017, respectively. There were no loans 90 days or greater past due and still accruing interest at March 31, 2018 or December 31, 2017.

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 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 is generally 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, 2018, there were 150 impaired loans totaling $68.3 million. Included in this total were 127 TDRs related to 123 borrowers totaling $37.4 million that were performing in accordance with their restructured terms and which continued to accrue interest at March 31, 2018. At December 31, 2017, there were 149 impaired loans totaling $52.0 million. Included in this total were 125 TDRs 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.

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



	March 31, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total Portfolio Segments
Individually evaluated for impairment	$	24,927	41,028	2,316	68,271
Collectively evaluated for impairment	5,082,757		1,684,752	458,425	7,225,934
Total gross loans	$	5,107,684	1,725,780	460,741	7,294,205



	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

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



	March 31, 2018
	Mortgage loans		Commercial loans	Consumer loans	Total
Individually evaluated for impairment	$	1,327	3,152	69	4,548
Collectively evaluated for impairment	26,674		29,174	2,125	57,973
Total gross loans	$	28,001	32,326	2,194	62,521



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

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 table presents the number of loans modified as TDRs during the three months ended March 31, 2018 and 2017, along with their balances immediately prior to the modification date and post-modification as of March 31, 2018 and 2017.



	For the three months ended
	March 31, 2018					March 31, 2017
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	5	8,127		6,626		1	292		284
Consumer loans	—	—		—		2	240		234
Total restructured loans	5	$	8,127	$	6,626	6	$	1,534	$	1,506

All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed. During the three months ended March 31, 2018, $3.0 million of charge-offs were 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 table totaled $411,000 and $158,000 at March 31, 2018 and 2017, respectively, and were included in the allowance for loan losses for loans individually evaluated for impairment.

The TDRs presented in the preceding table had a weighted average modified interest rate of approximately 5.66% and 3.30%, respectively, compared to a weighted average rate of 5.17% and 3.61% prior to modification for the three months ended March 31, 2018 and 2017, respectively.

The following table presents loans modified as TDRs within the previous 12 months from March 31, 2018 and 2017, and for which there was a payment default (90 days or more past due) at the quarter ended March 31, 2018 and 2017. 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, 2018			March 31, 2017
Troubled Debt Restructurings - Subsequent Default	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
	($ in thousands)
Commercial loans	3	$	428	1	$	284
Total restructured loans	3	$	428	1	$	284

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. PCI loans totaled $946,000 at March 31, 2018 and $1.0 million at December 31, 2017.

The following table summarizes the changes in the accretable yield for PCI loans during the three months ended March 31, 2018 and 2017 (in thousands):



	Three months ended March 31,
	2018			2017
Beginning balance	$	101		200
Accretion	(20		)	(49	)
Reclassification from non-accretable discount	31			21
Ending balance	$	112		172

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2018 and 2017 was as follows (in thousands):



Three months ended March 31,	Mortgage loans			Commercial loans		Consumer loans		Total
2018
Balance at beginning of period	$	28,052		29,814		2,329		60,195
Provision charged (credited) to operations	(22		)	5,390		32		5,400
Recoveries of loans previously charged-off	88			127		180		395
Loans charged-off	(117		)	(3,005	)	(347	)	(3,469	)
Balance at end of period	$	28,001		32,326		2,194		62,521

2017
Balance at beginning of period	$	29,626		29,143		3,114		61,883
Provision charged (credited) 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

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



	March 31, 2018						December 31, 2017
	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	$	13,519	10,701	—	10,733	135	13,239	10,477	—	10,552	479
Commercial	1,550		1,546	—	1,546	—	5,037	4,908	—	5,022	12
Total	15,069		12,247	—	12,279	135	18,276	15,385	—	15,574	491
Commercial loans	21,552		17,277	—	17,467	109	19,196	14,984	—	15,428	395
Consumer loans	1,559		1,016	—	1,040	18	1,582	1,041	—	1,150	69
Total impaired loans	$	38,180	30,540	—	30,786	262	39,054	31,410	—	32,152	955

Loans with an allowance recorded
Mortgage loans:
Residential	$	12,642	11,622	1,199	11,673	120	13,052	12,010	1,351	12,150	475
Commercial	1,058		1,058	128	1,073	13	1,064	1,064	135	1,076	54
Total	13,700		12,680	1,327	12,746	133	14,116	13,074	1,486	13,226	529
Commercial loans	26,236		23,751	3,152	26,022	89	7,097	6,239	1,134	7,318	208
Consumer loans	1,311		1,300	69	1,323	15	1,329	1,318	70	1,349	64
Total impaired loans	$	41,247	37,731	4,548	40,091	237	22,542	20,631	2,690	21,893	801

Total impaired loans
Mortgage loans:
Residential	$	26,161	22,323	1,199	22,406	255	26,291	22,487	1,351	22,702	954
Commercial	2,608		2,604	128	2,619	13	6,101	5,972	135	6,098	66
Total	28,769		24,927	1,327	25,025	268	32,392	28,459	1,486	28,800	1,020
Commercial loans	47,788		41,028	3,152	43,489	198	26,293	21,223	1,134	22,746	603
Consumer loans	2,870		2,316	69	2,363	33	2,911	2,359	70	2,499	133
Total impaired loans	$	79,427	68,271	4,548	70,877	499	61,596	52,041	2,690	54,045	1,756

Specific allocations of the allowance for loan losses attributable to impaired loans totaled $4.5 million at March 31, 2018 and $2.7 million at December 31, 2017. At March 31, 2018 and December 31, 2017, impaired loans for which there was no related allowance for loan losses totaled $30.5 million and $31.4 million, respectively. The average balance of impaired loans for the three months ended March 31, 2018 and December 31, 2017 was $70.9 million and $54.0 million, respectively.

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 March 31, 2018
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	Total loans
Special mention	$	6,694	16,334	351	—	23,379	14,204	648	38,231
Substandard	8,343		22,582	238	—	31,163	65,241	1,971	98,375
Doubtful	—		—	—	—	—	428	—	428
Loss	—		—	—	—	—	—	—	—
Total classified and criticized	15,037		38,916	589	—	54,542	79,873	2,619	137,034
Acceptable/Watch	1,112,707		2,146,191	1,423,245	370,999	5,053,142	1,645,907	458,122	7,157,171
Total	$	1,127,744	2,185,107	1,423,834	370,999	5,107,684	1,725,780	460,741	7,294,205


	At December 31, 2017
	Residential		Commercial mortgage	Multi- family	Construction	Total mortgages	Commercial	Consumer	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	$	1,142,347	2,171,056	1,403,885	392,580	5,109,868	1,745,138	473,957	7,328,963